Old wine in a new bottle. That’s what I would call the new overdraft (OD) facility from ICICI Bank — ICICI Bank Insta FlexiCash facility. In this post, let’s find out about ICICI Insta FlexiCash facility in detail. Additionally, let’s see if there is merit in owning an OD facility.
ICICI Bank Insta FlexiCash Overdraft Facility: Salient Features
- Only salary account customers of ICICI Bank are eligible.
- Facility of up to 3 times net monthly salary.
- No foreclosure charges.
- A pre-approved offer. If you are eligible, the offer will automatically show up in the bank mobile app or the net banking portal. You can apply and instantly avail the facility.
- Auto-renewal. The overdraft limit (OD limit) must be renewed every 12 months.
- Interest rate of 12-14% p.a. (as on 24-Jun-2020).
- Processing Fee: Rs 1,999. Taxes extra.
- Renewal Fee: Rs 1,999. Taxes extra.
How Does Interest Calculation Work?
The OD account is linked to the salary account. The money is swept automatically from OD account to salary account if there is shortfall in the salary account for any payment/withdrawal. When the salary account is funded, the money is automatically swept into the Overdraft account. This helps reduce the utilized amount and hence the interest cost. The interest will be charged to the OD account on a monthly basis.
How Is an Overdraft Facility Different from a Personal Loan?
A personal loan is a term loan. You borrow once and then you repay the loan by way of EMIs over the loan tenure. You can borrow just once. If you want to borrow more or borrow again, you must take a new personal loan.
An overdraft facility, on the other hand, is a revolving loan facility. You are given a credit limit. You can borrow up as many times as you want as long as the credit limit is not breached. For instance, the bank gave you an overdraft limit (OD limit) of Rs 5 lacs. You borrowed Rs 1 lac. Your credit limit (drawing power) goes down to Rs 4 lacs. After a month, you pay back the Rs 50,000. Your drawing power goes back to Rs 4.5 lacs (I am ignoring interest calculation here). The interest is charged only on the utilized amount (and not on the credit limit). It is calculated only for the period you use the amount.
Even the OD facility has a tenure. Once the tenure gets over, you must either repay the entire withdrawn amount along with the interest to the bank or renew the facility.
An overdraft facility is clearly more flexible than a personal loan in terms of the number and the quantum of withdrawals. On the other hand, in case of a personal loan, the bank has lent you the money. It can’t come back and ask for the money back before schedule. In case of an OD facility, the bank can decline to renew the facility or decrease the limit at the time of renewal.
How Is an Overdraft Facility Different from a Credit Card?
A credit card also provides you revolving credit just like an overdraft facility. However, there are a few differences.
A credit card provides an interest-free credit period of up to 45-52 days, which an OD facility doesn’t. On the other hand, if you don’t pay in full, you pay an interest of 36-42% p.a. Interest charges for OD facility are much lower. A credit card balance needs to be paid in full to avoid interest charges. With an overdraft, you can keep the account regular by paying interest charges on a monthly basis. Even for those charges, your OD account will be debited.
You can’t use your credit card to transfer money to family member. You can’t use a credit card if you are short on your EMI payments. Yes, you can use credit card to withdraw cash but that is expensive.
Is ICICI Insta Flexicash Facility Better Than a Credit Card or a Personal Loan?
There is no fixed answer. The answer depends on your requirement and on your cashflows. The answer will also be influenced by the interest cost and the other fee and charges.
Your personal loan eligibility is likely to be higher than the overdraft limit (3-month net salary in case of ICICI Insta Cash limit). Therefore, if you need a one-time big amount, a personal loan is likely to be a better option. You will get a longer repayment tenure with a personal loan.
On the other hand, in case of overdraft facility, you can keep the account regular just by paying the interest every month. If you expect small recurring requirements for any reason, an overdraft facility is better. An OD facility allows you greater flexibility.
A credit card is a good way to get discounts and tide over very short-term cashflow mismatches. Not beyond that. Therefore, if you foresee that you won’t be able to make full card payments on time, an OD facility is far better.
Between a credit card, a personal loan, and an overdraft facility, it does not have to be an either-or decision. You can use a mix of these facilities to meet your requirement. For instance, you can use your credit card for a purchase and use the interest-free credit period. Thereafter, you draw from your OD account to make the credit card payment.