Yes.
In a typical LAMF overdraft, interest is charged only on the outstanding amount actually used and for the number of days it remains outstanding.
The daily balance can rise with withdrawals and fall with repayments.
The lender generally totals this daily accrual and posts or collects it monthly.
Any processing, pledge, renewal or overdue charges are separate from normal interest.
What "amount used" means
The amount used is the closing outstanding balance after withdrawals, repayments and permitted account entries.
For example, if you:
- Draw ₹80,000
- Repay ₹30,000
The next day's interest normally applies to ₹50,000, subject to the credit date and lender rules.
Why daily balance is fairer
A flat calculation on the sanctioned limit would charge you for money you never borrowed.
The daily reducing method instead follows actual usage, making flexible drawdown and part-payment meaningful.
Interest and APR should not be confused
The interest rate measures the borrowing charge.
APR is broader and includes applicable charges associated with the facility.
RBI's Key Fact Statement framework requires these key costs to be disclosed so borrowers can compare offers.
Keep a buffer in the linked account
Even with interest-only-on-use, a missed monthly collection can create overdue charges or account irregularity.
Track the billing date and keep adequate funds available when the lender collects interest through auto-debit.
A quick interest check
Before drawing, estimate the cost using:
Amount × Annual rate × Expected days ÷ 365
Also check:
- Applicable fees
- Monthly billing date
- Interest collection method
- Effect of repayments or fresh withdrawals
The Bottom Line
The core rule is:
Pay interest on what you use.
Your sanctioned limit provides access.
Your utilised balance creates the normal interest bill.
Compare facilities using APR and charges as well as the headline interest rate.
Facing a financial emergency?
Check how much credit your mutual funds may support
Get an indicative eligibility check. The final limit and terms are decided by the lending partner.
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Information on this page is general in nature. Eligibility, approved schemes, LTV, rates and charges depend on the regulated lender's current policy and the final loan documents. This is not financial advice. The content is purely for educational purposes.