For instance, Megha, owner of a Surat-based clothing brand, has taken a business loan overdraft of ₹40,00,000. She took this loan at an 15.99% interest rate and has to repay the loan within 5 years. This means she can borrow up to that amount whenever she needs it.

One month, she needed ₹10,00,000 to pay for some business expenses. Instead of borrowing the full ₹40,00,000, she withdraw only ₹10,00,000 from her Overdraft account. Megha only had to pay interest on the ₹10,00,000 she used, not on the whole ₹40,00,000 which is approx Rs 438/day. Later, when she got paid by her clients, and she repaid the ₹10,00,000, and her full ₹40,00,000 overdraft limit was available again and her interest from that day went to zero again and she don't have to pay any Interest or EMI now. This helped Megha manage her money better and avoid extra interest charges. She only pays interest amount for the limited period of the funds utilisation, otherwise its zero repayements.

As a result, Megha paid an interest of ₹1,59,990 along with the principal amount of ₹10,00,000 for the funds utilised for whole year. According to this, she will need to pay just ₹13,325/month for 60 months if funds are kept utilised for 5 years. Megha will also have to pay ₹80,000 as a one-time processing fee (charged at 2%). Secondly, she will also pay ₹500 as stamp duty charges.

The repayment period for business overdraft loans ranges between 1 and 7 years. Depending on the applicant’s financial records and credit score, a business overdraft loan’s annual percentage rate (APR) can vary from 15.99% to 19%.