Overdraft vs Term Loan
One is a flexible line you dip into as needed, the other a lump sum repaid on a fixed schedule. Here's how to choose the right structure.
Quick verdict
Choose an overdraft for flexible, short-term working capital where you pay interest only on what you use.
Choose a term loan for a fixed lump sum to fund expansion or capex, repaid in predictable EMIs.
Overdrafts cost more per rupee used but flex with your cash cycle; term loans are cheaper for planned, long-term spend.
The basics
Overdraft (OD)
A revolving credit line linked to your account that lets you withdraw beyond your balance up to a set limit. You pay interest only on the amount used and for the days used, making it ideal for short-term working-capital gaps.
Term Loan
A fixed lump sum disbursed upfront and repaid over a set tenure in equal monthly instalments. Interest accrues on the full outstanding, so it's best for planned, one-time needs like expansion, capex, or equipment.
Overdraft vs term loan at a glance
| Factor | Overdraft | Term Loan |
|---|---|---|
| Structure | Revolving credit line | Fixed lump sum upfront |
| Interest basis | Only on the amount used | On the full outstanding balance |
| Repayment | Flexible, revolving | Fixed EMIs over the tenure |
| Typical rate | 14% to 20% p.a. on drawn amount | 14% to 22% p.a. |
| Tenure | Renewable, usually 12 months | 12 to 60 months |
| Best for | Short-term working capital | Expansion, capex, equipment |
| Collateral | Often against receivables or FD | Secured or unsecured by profile |
| Predictability | Cost varies with usage | Predictable monthly outflow |
| Speed | Fast once limit is set | Term sheet in 48 hours |
Estimate your term loan repayments
See what a fixed term loan costs per month across rates and tenures. An overdraft charges interest only on what you draw, but this gives you the fixed-EMI baseline to compare against.
What a term loan term sheet looks like
An anonymised sample facility for a growth-stage services business, with each term explained in plain English.
| Term | Sample value | What it means in plain English |
|---|---|---|
| Facility amount | ₹1 Cr | The full lump sum disbursed upfront to fund expansion. |
| Instrument | Term loan | A lump sum repaid in fixed monthly instalments, with no equity. |
| Interest rate | 16.5% p.a. | The annual cost, charged on the full outstanding balance. |
| Tenure | 36 months | How long you have to repay the loan. |
| Moratorium | 2 months | A short repayment holiday where you pay only interest at first. |
| Processing fee | 1.5% one-time | A one-time fee deducted at disbursal. |
| Security | Hypothecation of assets | A charge over business assets, with no equity pledged. |
| Prepayment | Allowed after 6 months, 2% charge | You can close early once the lock-in passes, for a small fee. |
Anonymised, indicative sample. Actual terms depend on your revenue, margins, and lender.
When to choose each
Choose an overdraft when
- You need flexible cover for short-term working-capital gaps.
- Your cash needs are unpredictable and vary month to month.
- You want to pay interest only on what you actually use.
- You're bridging the gap between paying suppliers and getting paid.
Choose a term loan when
- You have a planned, one-time need like expansion or capex.
- You want a larger lump sum with predictable EMIs.
- You prefer a fixed cost you can budget for over years.
- The spend has a clear payback over a longer horizon.
How Recur Club helps you structure the right facility
Choosing between a revolving overdraft and a fixed term loan comes down to whether your need is recurring or one-time. Recur Club brings 125+ lenders onto one AI-native platform so you compare both structures side by side, priced against your financials.
Connect your data once and receive an indicative term sheet within 48 hours, whether that's a flexible working-capital line or a fixed-term facility.
With ₹3,000 Cr+ deployed across 2,000+ companies, our team helps you match the structure to your cash cycle so you never overpay for capital you don't use.
Frequently Asked Questions
Match the right facility to your cash flow
Compare overdraft and term loan offers from 125+ lenders, with an indicative offer in 48 hours.
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