OD Loan Calculator (Overdraft Interest)

How overdraft interest actually works

An overdraft (OD) is a sanctioned limit, not a disbursed loan. Nothing is charged for having the limit — the meter only starts when you draw on it. Interest accrues on the daily closing balance, typically on a 365-day year, and is debited to the account monthly.

That single difference is why comparing an OD to a term loan on headline rate alone is misleading. A 12% OD used for six weeks is not "12% interest". On ₹3,00,000 drawn for 45 days, the interest is ₹4,438 — against ₹36,000 if the same ₹3,00,000 sat drawn for a full year. Same rate, same principal, an eighth of the cost, purely because of time.

The formula

Interest = Amount drawn × (Rate ÷ 100) × (Days ÷ 365)

Applied to the example above: 3,00,000 × 0.12 × (45 ÷ 365) = ₹4,438.36. The per-day figure — ₹98.63 here — is the number worth carrying in your head, because it tells you exactly what one more day of delay costs.

Where an OD beats a term loan, and where it does not

An overdraft wins when the need is lumpy and short: a supplier payment that lands three weeks before a customer pays you, a tax outgo, a seasonal stock build. You draw, you repay, and you are charged only for the gap. A term loan for the same amount would charge you interest for its whole tenure whether you needed the money or not, and prepaying it may attract a charge.

An overdraft loses when the need is large and permanent. OD rates usually sit above secured term-loan rates, and because there is no repayment schedule, an overdraft that is never brought back to zero quietly becomes a permanent loan at a higher rate. That is the trap: no EMI means no forced discipline.

The table above is there to make this concrete. Watch the "Total Repayable" column as you move down the rows — the cost of drift is easier to feel as a number than as a principle.

The effective annualised cost, and why it can look absurd

If you enter a processing or renewal fee, the Effective Annualised Cost row can come out far above the headline rate. On ₹2,00,000 at 12% for 30 days with a ₹2,000 fee, it reads about 24% — double the stated rate.

That is not an error. A fixed fee spread over a short draw is expensive in annualised terms, and it is the honest way to compare a fee-bearing facility against a fee-free one. Draw the same money for a year and the fee's contribution shrinks toward nothing. The figure is most useful when you are choosing between two facilities, and least useful as a headline on its own.

Things that change the number in practice

• The day-count convention. This calculator uses 365 days. Some lenders use 360 for certain facilities, which raises the daily figure slightly. Check your sanction letter.
• Interest debited monthly. Once interest is charged to the account, it becomes part of the drawn balance and itself attracts interest. Over long unbroken draws this compounds; over the short draws an OD is designed for, the effect is small.
• Minimum utilisation or commitment charges. Some sanctions require you to use a minimum share of the limit, or levy a fee on the unused portion. Neither is modelled here.
• OD against FD or securities. These are usually priced 1–2% above the deposit rate and are far cheaper than an unsecured OD — the rate you enter should be the one on your own sanction, not a market average.