Dropline Overdraft is a financial instrument that allows a borrower to overdraw cash from his/her current account up to an agreed limit, wherein the withdrawal limit reduces each month from the sanctioned limit. The interest rate is paid only on the withdrawn cash and not on the total borrowing limit. Money can be deposited anytime to reduce the outstanding balance. Interest rate is calculated on a daily basis and is charged at the end of each month.

Let’s understand Dropline Overdraft facility with an example:

If the initial tenure of the overdraft facility is 60 months and the original overdraft limit granted is Rs. 10 lakh, then after 1 month the operating limit shall automatically be reduced by 10,00,000/60 = Rs. 16,666. This means that the operating limit available at the end of the first month shall be (10,00,000 – 16,666) = Rs. 9,83,334. This calculation shall proceed for the second month as well and each month further, up till the last month of repayment tenure.

Features of Dropline Overdraft

• Withdrawal limit reduces each month from initially sanctioned limit.
• Comes as both secured and unsecured loan.
• Do not require collateral to be submitted, in case of unsecured Dropline Overdraft facility.
• Interest rate is charged on a monthly basis but calculated on daily basis.
• Borrowing limit can go up to Rs. 15 crore, however it depends on bank’s sole discretion.
• Borrowed amount is credited to only current accounts.
• Can be used on a monthly, quarterly, half yearly or yearly basis.
• Usually the Dropline limit is assigned for 1 – 15 years, it may vary from bank to bank.
• One-time processing fee is charged.
• Do not levy yearly renewal charge.
• It is a mix of term loan and overdraft facility.
• Opted mostly by manufacturers, retailers and traders.

Who can avail Dropline Overdraft facility?

Dropline Overdraft facility can be availed by entrepreneurs, self-employed professionals, private limited companies, partnership firms, sole proprietorship and many more entities.