What is an overdraft loan: How it works and when to use it

What is overdraft?

An overdraft loan is a form of bank lending that allows customers to withdraw money in excess of the balance in their current account. The bank will give the customer a limit, within which the customer can withdraw money and make payment transactions without worrying about the account balance.

Overdraft loans provide financial flexibility to customers, especially in urgent situations. Not only does it help solve emergency situations, but it also brings convenience and comfort in managing your personal finances.

Suppose you have a current account with a current balance of 5 million VND. The bank you are using provides this loan service with a limit of 10 million VND.

For example, if you spend 8 million VND from your account, you will owe -3 million VND (this is the amount you borrowed). Your loan limit will be 10 million VND.

It is important that you pay back this overdraft according to the terms and conditions agreed with your bank, including interest rates and repayment periods.

Quyen is a creative copywriter with a passion for fintech. a degree from the Ho Chi Minh University of Economics. After graduating from the UEH (Ho Chi Minh Economics of University), she's constantly expanding her knowledge through investment and financial literacy courses, seminars, and conferences. Quyen also has experience in banking and credit. Her articles draw on her background in finance to help readers make informed decisions.