What is OD/CC loan?
OD & CC Limit, both are a sort of “Running Loan Accounts” reviewed and renewed, if necessary, after one year. Such loan accounts are ideal for traders and manufacturers for managing their cash flow and working capital requirements. Cash credits are more commonly offered for businesses than individuals. They require that a security be offered up as collateral on the account in exchange for cash.
Points to be considered while taking a CC or OD account facility :-
1. Rate of Interest –Rate of interest is higher than fixed loans like Loan against property (LAP) therefore if you generally don’t have extra money to park in cc or od account then you should opt for LAP.
2. Processing fees – Processing fees charged by bank is normally .5% to .75% and could bargain on it.
3. Minimum usage condition – Some bank levies charges if the cc or od account is not utilized upto a certain limit. For example you take an OD account of Rs. 10 lakhs and average use during the year is not 30% i.e Rs. 3 lakh then charges are levied.
4. Account closing charges –Some banks also levies a percentage of loan amount as charges called foreclosure charges if you want to close the account. This generally ranges from 1% to 2%. If your bank levies 2% foreclosure charges then its not beneficial for you to shift to other bank even if other bank gives you a better interest rate.
5. Interest Servicing –Some banks required the customers to deposit the interest of the month in the account through cash or cheque deposit within a few days of the next month.