Utilized Overdraft Balance
₹ 5,00,000
Daily Interest Amount
₹ 164
Utilization Duration
30 Days
Total Interest Payable
₹ 4,932
About the Overdraft Interest Calculator
Our free Overdraft Interest Calculator helps business owners and individuals compute the exact interest charges accrued on bank overdraft facilities. Unlike standard term loans where interest applies to the entire sanctioned amount, overdraft interest is charged exclusively on the daily utilized balance.
1. Overdraft Interest Mathematical Formulas
Bank overdraft interest charges accrue daily based on active utilized funds:
Daily Interest = [ Utilized Amount × (Interest Rate / 100) ] / 365
Total Interest Payable = Daily Interest × Utilization Days
Where the defined variables are:
- Utilized Amount: The actual funds borrowed or withdrawn from the overdraft facility.
- Interest Rate: The annual percentage rate (p.a.) levied by the bank.
- Utilization Days: Total number of days the funds remain withdrawn during the billing cycle.
2. Practical Worked Example
Let us review a standard business overdraft utilization scenario:
- Total Overdraft Limit: ₹10,00,000 (₹10 Lakhs)
- Utilized Overdraft Amount: ₹5,00,000 (₹5 Lakhs)
- Interest Rate: 12% per annum
- Utilization Period: 30 days
Calculation Breakdown:
- Daily Interest = [ ₹5,00,000 × 0.12 ] / 365 = ₹60,000 / 365 $\approx$ ₹164.38 per day
- Total Interest Payable across 30 days = ₹164.38 × 30 $\approx$ ₹4,932
Because interest is calculated strictly on daily utilized balances, repaying funds early drastically lowers your interest obligation!
3. Frequently Asked Questions (FAQs)
1. Is interest charged on the total OD limit or the utilized amount?
Interest is charged strictly on the utilized amount (the actual funds withdrawn), not on the total sanctioned overdraft limit.
2. How frequently is overdraft interest debited by commercial banks?
Most banks calculate interest on a daily basis and debit the accumulated interest charges from your current account at the end of each calendar month.
3. Are there any extra fees associated with bank overdrafts?
Yes, banks often charge annual facility renewal fees, processing charges, or commitment fees on unutilized limits depending on your corporate or individual banking agreement.
4. What is the difference between an overdraft facility and a cash credit (CC) limit?
Overdrafts are typically tied to current or salary accounts for short-term liquidity, whereas Cash Credit (CC) limits are secured working capital facilities dedicated to business inventory and receivables financing.
5. Do I need to pay a fixed monthly EMI on an overdraft limit?
No. Unlike standard term loans, overdrafts do not have fixed monthly principal EMIs; borrowers only need to service the monthly accrued interest and maintain the balance within the sanctioned limit.
6. What happens if I exceed my sanctioned overdraft limit?
Exceeding your sanctioned limit results in over-limit penalties, higher punitive interest rates on the excess amount, and potential dishonored transactions.
7. Can overdraft interest be claimed as a business tax deduction?
Yes, if the overdraft facility is utilized strictly for business and operational purposes, the interest paid can be claimed as a deductible business expense under corporate tax laws.
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