What is a bank overdraft? Instructions on forms, conditions and interest rates 2025

Unlike conventional loans, overdrafts allow you to use money that exceeds the balance in your account and only pay interest on the amount actually used. This article will explain in detail what overdrafts are, common forms, conditions, application process and reference interest rates in 2025, helping you make appropriate and effective financial choices.

Quick summary of bank overdraft:

Overdraft is a form of credit that allows customers to use money exceeding the account balance within the bank limit. In which, the forms of loans include:

• Unsecured overdraft loan (no collateral required)
• Secured overdraft loan (with collateral).

Overdraft loans usually have quick procedures and quick disbursement to give customers flexibility in spending. Interest rates are higher than regular loans and debt management and timely repayment are required to avoid risks.

1. What is a bank overdraft?

Overdraft loan is a form of credit that allows customers to use an amount of money that exceeds the balance of their checking account within the limit approved by the bank. In other words, even if your account balance is zero, the bank still allows you to spend within the overdraft limit. This excess amount is considered a loan and must pay interest according to the bank's regulations.

Outstanding features of overdraft loan:

• Quick and simple procedure:Overdraft loan applications require less paperwork than traditional consumer or business loans. Usually, you only need your ID card, savings book or proof of income, and the bank can approve within a few hours to 1-2 working days.
• Fast disbursement:Once your application is approved, you can immediately use the overdraft limit on your account without having to wait for a loan agreement or transfer funds. This is especially useful when you need to pay bills, service fees or urgent purchases.
• Flexible spending:You can use overdraft money for many different purposes such as paying electricity, water, internet bills, shopping, paying tuition, business expenses or supplementing working capital for the business. The bank only charges interest on the amount actually used, not the entire limit.
• Short loan term:Loan limits are usually only from a few months to 12 months, suitable for short-term spending needs or to deal with unexpected expenses.
• Automatic principal repayment:When there is money in the account, the bank will automatically deduct the amount used along with interest. This mechanism helps limit outstanding debt and reduce interest payable.

Illustrative example:

Let’s say you have a 5 million VND account but need to pay a 10 million VND bill for a business trip. If the bank gives you an overdraft limit of 10 million VND, you can spend the full 10 million VND without having to deposit more money.

The bank will charge interest only on the excess 5 million VND, and when you deposit another 5 million VND into your account, the bank will automatically deduct the principal and interest, helping you not to worry about manual payments.

Overdraft is using money in excess of the account balance.

2. Two popular forms of overdraft loans

2.1 Unsecured overdraft loan

An unsecured overdraft loan is a type of loan that does not require collateral. The bank approves the application based on the customer's income, credit history, and reputation. The loan limit usually depends on the borrower's ability to repay and income level. Because no collateral is required, the unsecured loan procedure is often quick and flexible, helping customers access funds quickly.

Suitable for:Unsecured overdraft loans are suitable for individuals or small businesses with stable income but do not own collateral. This form is suitable for small and medium-sized loans, serving short-term expenses, paying bills, shopping or supplementing working capital. This is the optimal solution when you need money urgently but do not want or cannot mortgage assets.

Reference interest rate (2025):from 12.9% - 18%/year, depending on the bank and customer profile.

Advantage:

• Quick procedure, simple documents, no collateral required.
• Fast disbursement, usually within the same day.

Limit:

• Higher interest rates than mortgage overdrafts.
• Low loan limits, dependent on income and credit history.

Unsecured overdraft is a loan that does not require collateral.

2.2 Mortgage overdraft

A secured loan is a type of loan in which the customer must have collateral such as real estate, cars, savings books, bonds, etc. The bank will evaluate the property to determine the loan limit and applicable interest rate. Thanks to the collateral, the mortgage loan limit is usually higher and the interest rate is lower than unsecured loans. However, the loan procedure is more complicated and the approval time is longer.

Suitable for:Mortgage overdrafts are suitable for individuals or businesses with large borrowing needs and owning collateral. This form is ideal for customers who need capital to invest in business, purchase large assets or solve high-value expenses, thanks to high loan limits and preferential interest rates.

Reference interest rate (2025):from 5% - 10%/year, depending on the bank and type of collateral.

Advantage:

• Lower interest rates than unsecured loans.
• High loan limit, can be up to hundreds of millions or billions of dong.

Limit:

• The procedure is more complicated, requiring collateral and proof of ownership.
• Approval times are longer than for unsecured loans, and can take from several days to several weeks.
  
   

3. Conditions for bank overdraft loans

3.1 Conditions for unsecured loans

Unsecured overdraft loan is a form of loan that does not require collateral, so the bank will focus on approving based on the customer's reputation, income and ability to repay. Basic conditions usually include:

• Vietnamese citizens, aged 20–70:The customer must be of working age to ensure the ability to repay the loan throughout the loan period. Some banks may apply different minimum and maximum ages, so check carefully when applying.
• No bad debt at banks or other financial companies:Customers must not be on the bad debt list of CIC (National Credit Information Center) to ensure reputation and loan approval ability.
• Minimum income:The required income level depends on each bank, but is usually from 5 million VND/month or more for individual customers. This is the basis for the bank to evaluate the ability to pay interest and principal.
• Loan purpose in accordance with bank regulations:Customers need to clearly declare the purpose of using the overdraft limit, such as living expenses, bill payments, and working capital supplements, according to the regulations of each bank.

Loan conditions: old enough, stable income, no bad debt.

3.2 Mortgage loan conditions

Mortgage overdrafts require customers to have collateral, so the approval conditions will be more stringent:

• Vietnamese citizens, aged 18–65:Make sure the customer is of legal age and working age to mortgage the property. Some banks may be flexible on age, but legal regulations must be followed.
• Have collateral according to bank regulations:Assets can be real estate, cars, savings books, bonds, etc. The bank will evaluate and decide the overdraft limit based on the value of these assets.
• No bad debt:Customers need to have a good credit history so that the bank can be confident about their ability to repay the loan.
• Stable income:Income must be sufficient to pay principal and interest on time. This is the basis for the bank to approve the loan limit and interest rate.

Note: Each bank has its own policies regarding age, minimum income, acceptable assets and other conditions. Therefore, before applying for an overdraft loan, you should contact the bank directly for detailed and accurate advice.

4. Bank overdraft loan process

Before using the overdraft limit, you need to follow the following 4-step process to get your application approved quickly and use money effectively:

Step 1: Prepare documents
Customers need to prepare a loan application, valid ID card/passport, and documents proving income such as employment contracts, payrolls or salary statements. If borrowing on mortgage, additional documents proving property ownership are required. The application can be submitted in person, by post or online, depending on the bank.

Step 2: Document appraisal
The bank will assess the customer's ability to repay, reputation and credit history. At the same time, the overdraft limit will be determined based on income, collateral and usage needs.

Step 3: Sign the loan contract
After the application is approved, the customer and the bank sign a contract, agreeing on terms of limit, interest rate, loan term, repayment method and any fees incurred.

Step 4: Disbursement
Money is transferred to the overdraft account, customers can use it immediately. With unsecured loans, disbursement is usually within the day; mortgage loans may take a few days due to the need to appraise the property. The bank will automatically deduct the principal and interest when there is money in the account, making loan management more convenient.

Come to SeABank for consultation and use flexible overdraft service

5. Benefits and limitations of overdraft loans

Before deciding to use an overdraft limit, you should clearly understand the benefits and limitations of this form of loan, thereby taking advantage of the advantages and avoiding risks in financial management.

Benefit

• Quickly solve short-term capital needs: Pay bills, purchases, business expenses, supplement business capital.
• Flexible and convenient spending: Pay interest only on the amount actually used, not the entire limit.
• Simple procedures, quick disbursement: Especially with unsecured loans, you can receive money within the day.
• Easy cash flow management: The bank automatically deducts principal and interest when there is money in the account, reducing payment pressure.
• Loan limit can be adjusted according to customer's reputation: Flexible to meet spending needs that increase or decrease over time.

Limit

• High interest rates: Especially with unsecured loans.
• Financial pressure if debt is not paid on time: It is easy to get into debt if spending is not managed.
• Impact on creditworthiness: Late payments can negatively impact your credit history and future loan limits.
• Need a bank account and stable income: Not everyone meets this condition.

SeABank stands out with simple loan procedures, quick approval and timely disbursement.

SeABank provides flexible overdraft services, helping both individuals and businesses to use more than their account balance when they need urgent capital. Simple and quick procedures, timely approval and convenient disbursement, helping customers proactively manage cash flow. This form of loan is suitable for many short-term needs, from personal expenses, bill payments to additional business capital, providing flexibility and convenience in daily financial management.

Conclusion

Bank overdraft is a flexible financial solution, helping individuals and businesses quickly meet short-term capital needs. Before registering, you should carefully consider interest rates, limits and repayment capacity to effectively manage cash flow and avoid financial pressure. Contact SeABank immediately for detailed advice, determine appropriate limits and experience overdraft services with simple procedures, quick disbursement and competitive interest rates.

For more information, you can contactSeABank via Hotline or visit websitewww.SeABank.com.vn.