Bank Overdraft in the UAE

Overdraft in the UAE

Overdraft (OD) is a credit extension provided by the bank when there are no funds available in the account. When there are no sufficient funds or zero funds available in the account, through an overdraft facility, the account holder can withdraw money from the account. An overdraft is similar to a loan. There is an interest rate and overdraft fee charged. 

Working of Overdraft Facility

When there are no funds in your salary account or current account, you can apply for an overdraft facility and get a loan as per the overdraft limit on your account. There will be a specific rate of interest added to this. Not just the interest rate, some banks also charge an overdraft fee on availing such features. 

For example, If you need money for any emergency and out of funds in your salary or current accounts, then you can contact the bank and request an overdraft option. Banks will check your request and credit funds to your account according to eligibility. The account holder can withdraw funds using a debit card or cheque. 

There will be an interest rate charged, along with an overdraft fee. Once your salary is deposited to the account or any funds are deposited in the account, the money will be considered as the payment against overdraft taken. 

Though there is a specific interest rate added for an overdraft, the interest charged will be only for the amount used and the number of days taken. 

Example: You are granted an overdraft of AED 5000 and the interest rate is 10% per annum, and you withdraw only AED 1000 in 10 days then the interest would be calculated only for AED 1000 for 7 days period. 

The overdraft amount provided varies with each bank or financial institution. At some banks, the overdraft limit can depend upon the salary of the account holder, up to 2 - 3 months salary is provided as the overdraft, while some provide 90% of the Fixed deposit amount as the loan.   

At most of the banks in the UAE, the validity of an overdraft is 12 months which can be renewed according to the terms of the bank. 

Eligibility Criteria for Bank Overdraft in UAE

Though the eligibility criteria for an instant OD varies with the bank or financial institution, the basic eligibility criteria are, 

• A minimum salary of AED 3000 is needed (depends on the bank)
• A fixed deposit is required (Can be an option) 
• Must be UAE resident 
• Must be a minimum of 21 years old 
• Should have a banking relationship with that particular bank 
• Your employer must be listed with the bank (depends on the bank) 
• Salary transfer is mandatory 

Documents Required for a Bank Overdraft in UAE

The basic documents required for a bank overdraft are listed below. Apart from these, banks may request more documents. 

• Emirates ID 
• 3-6 months bank statements 
• Valid Resident Visa and Passport 
• Salary Transfer Letter (if applicable)
• Security cheques (if applicable) 

How to apply for a Bank Overdraft in the UAE?

Applying for a bank overdraft facility is a simple one if you have all the documents in hand and meet the eligibility criteria of the bank. 

If you have a current or salary account at a bank, contact the bank officials or visit the branch and apply directly. Even the individuals who don’t have an account at the bank can open an account and apply for an overdraft. 

Advantages of Bank Overdraft

• Quick loan for emergencies 
• Interest is paid on the overdraft amount utilised 
• Short-term loan 
• Less documentation 
• Can withdraw the amount in short-intervals 
• No collateral is required 

Disadvantages of Bank Overdraft

Though the short-term quick loan can be a saviour during urgent cash requirements, there are a few disadvantages to it. 

• The interest rate is high compared to a personal loan 
• The overdraft limit depends upon your monthly earnings 
• Short-term finance 
• Should have a prior relationship with the bank 

Banks offering Overdraft in the UAE

• Emirates NBD
• National bank of Fujairah (NBF)
• HSBC 
• Commercial bank of Dubai (CBD)
• Commercial Bank International (CBI)
• Mashreq Bank 
• United Arab Bank 
• FAB 
• RAKBANK