Rytvae Consulting · Think Right · Invest Right
Term Loan vs OD vs DLOD
Result
Chart
Show formula & working
Term loan: interest on the reducing balance of the full amount (EMI)
Overdraft: interest = Amount drawn × r, every month; drawn amount repaid at the end
Drop-line: limit falls by Amount ÷ n each month; interest = share used × current limit × r
Details
How this works
A term loan puts the whole amount in your account on day one, and you pay interest on all of it until it is repaid. That suits a one-time need such as buying property.
An overdraft and a drop-line overdraft charge interest only on what you draw. The drop-line limit shrinks every month, which forces repayment; a plain overdraft does not, so the drawn amount is still owed at the end.
For a full drop-line schedule with drawdowns and daily interest, use the DLOD calculator.
Frequently asked questions
Which is cheapest?
It depends on how much of the money you really use. If you would keep most of it idle, an overdraft or drop-line saves interest; if you need it all on day one, a term loan is often cheaper per rupee.
Are overdrafts renewed?
Typically yearly, with a renewal or processing fee. Drop-line overdrafts on property run for a fixed tenure with a falling limit.
Talk to Rytvae
Compare lenders, structure the loan and plan prepayments with someone who reads sanction letters for a living.