An overdraft loan, also known as a flexi loan or a line of credit, is a type of loan provided by banks that allows an account holder to withdraw more money from their account than they have available. Essentially, it is a form of credit extension where the bank permits the account holder to temporarily overspend up to a certain limit. Overdraft loans can be used to cover short-term financial gaps or unexpected expenses.

Here  how it generally works:

1. Credit Limit: The bank assigns a credit limit to the account holder based on their financial profile, credit history, income, and other factors. This credit limit represents the maximum amount by which the account holder can overdraw their account.

2. Usage: The account holder can withdraw money from their account even if the account balance is lower than the credit limit. The overdraft amount becomes a debt owed to the bank.

3. Interest: Interest is charged only on the amount that has been overdrawn. Interest rates on overdraft loans are typically higher than those for regular loans, and they are charged on a daily basis.

4. Repayment: The account holder must repay the overdraft amount, along with the accrued interest, within a specified period. Some banks require a minimum monthly repayment, while others might allow the account holder to repay the entire amount when they can.

5. Flexible Repayment: Overdraft loans offer flexibility in terms of repayment. The account holder can repay the amount as and when they have funds available, as long as it is within the agreed-upon repayment period.

Eligibility criteria for an overdraft loan can vary depending on the bank and the countrys regulations, but here are some common factors that lenders consider:

1. Bank Account: Generally, you need to have an existing bank account with the lender to be eligible for an overdraft loan.

2. Credit History: Your credit history and credit score play a role in determining your eligibility. A good credit history can increase your chances of approval.

3. Income and Financial Stability: Lenders usually consider your income and overall financial stability to ensure you can manage the repayment of the overdraft loan.

4. Account Usage: Some banks might consider your accounts transaction history to assess how you manage your finances.

5. Existing Relationship: Being an existing customer of the bank might improve your eligibility chances, as the bank has more insights into your financial behavior.

6. Documentation: Lenders may require you to provide documents like proof of identity, address, income statements, and other relevant financial documents.

It is important to note that overdraft loans are not meant for long-term financing due to their higher interest rates. They are best suited for short-term financial needs or emergencies. Before applying for an overdraft loan, make sure to understand the terms and conditions, including interest rates, fees, and repayment terms. Always manage your overdraft responsibly to avoid accumulating excessive debt.