Is an overdraft actually cheaper?

A home loan overdraft sounds like a free option - park your surplus, cut your interest, take it back when you need it. Whether it beats a plain loan depends on one number, and most people guess it wrong.

In one line

An OD only wins if you keep a large enough surplus parked for long enough. The OD rate is typically higher than the plain loan rate, so you start behind and the surplus has to earn that gap back. Run your own numbers below - the break-even is usually higher than people expect.

What we found

We ran this on our own loan

Our Reel on this topic

Home Loan vs Overdraft - we ran the math on our own loan

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When we took our home loan, the bank offered both options. Instead of guessing, we calculated one thing: how much surplus needs to stay parked at all times to offset the higher overdraft interest?

There is a clear break-even. Below it, the overdraft costs more. Above it, it saves interest and keeps your money liquid.

Two things worth knowing before you decide:

  • Park only your emergency fund or short-term planned expenses here. Money you will not touch for three years or more is better off in equity.
  • A home loan overdraft is a dropline overdraft - the limit falls every month by the sanctioned amount divided by the tenure. Get it sanctioned higher than you actually need, as a buffer.
Run your numbers

Run the math for your case

Home Loan EMI Calculator

Calculate your monthly EMI for any loan amount, rate, and tenure.

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e.g. 20000000 for ₹2 crore

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e.g. 180 = 15 years, 240 = 20 years

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Home Loan vs Overdraft - Break-even Surplus

Find out exactly how much surplus you need to keep parked for overdraft to make financial sense.

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months
%
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Typically 0.35-0.5% higher than home loan rate

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To check if OD makes sense for you

Break-even Surplus Needed
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Keep this much parked at all times for OD to save interest
Monthly EMI (same for both)
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We'll tell you whether OD makes financial sense for your situation.

How the maths works

The logic behind the break-even

Step 01

Calculate your EMI at home loan rate

Your EMI is calculated at the regular home loan rate. With an overdraft, you keep the same EMI - this is key.

Step 02

Find the PV of that EMI at overdraft rate

We calculate what your EMI stream is worth today discounted at the higher overdraft rate. This is lower than the loan amount.

Step 03

The difference = your break-even

Loan amount minus that PV = the surplus you must keep parked at all times. If your idle cash exceeds this, OD wins.