Kuda Overdraft Loan: How It Works, Benefits, Risks, and Qualification Requirements

Kuda Bank, popularly called the “bank of the free,” is a digital financial platform that offers flexible banking solutions to Nigerians. One of its most attractive features is the Kuda overdraft loan, which allows customers to access quick funds without going through the traditional loan application process. This feature has become popular because it provides instant money for urgent needs, but like every credit facility, it comes with both advantages and disadvantages.

What Is a Kuda Overdraft Loan?

A Kuda overdraft loan is a short-term borrowing feature that lets you spend more money than you currently have in your account. Unlike traditional loans, you do not need to apply separately or fill out lengthy forms. The overdraft is offered automatically based on your banking history with Kuda, especially how much money flows in and out of your account.

When you spend beyond your available balance, Kuda covers the extra amount, and you are required to repay it later with interest. This makes it a convenient tool for emergencies, online shopping, or settling urgent bills.

Advantages of Kuda Overdraft Loan

1. Instant Access to Funds
   Once you qualify, your overdraft is activated immediately without waiting for approval.
2. No Paperwork Required
   You don’t need collateral, guarantors, or lengthy applications.
3. Flexible Repayment
   Repayments are deducted automatically whenever money enters your account.
4. Builds Credit Record
   Regular use and timely repayment can increase your overdraft limit over time.
5. Convenience for Daily Transactions
   You can use the overdraft to complete transfers, pay for utilities, or shop online.

Disadvantages of Kuda Overdraft Loan

1. High Interest Charges
   Overdrafts often attract higher daily or monthly interest rates compared to structured loans.
2. Limited Amounts
   The amount depends on your account activity. Light users may only get small overdraft limits.
3. Automatic Deductions
   Any inflow to your account goes first to repay the overdraft, which can be inconvenient.
4. Short-Term Facility
   It is designed for quick repayment, not long-term borrowing.

Example: How Much Will You Repay on a Kuda Overdraft Loan?

Kuda typically charges 0.3% daily interest on overdrafts. Let’s assume you borrow ₦50,000 for 30 days.

• Principal Borrowed: ₦50,000
• Daily Interest (0.3% of 50,000): ₦150
• Interest for 30 Days: ₦150 × 30 = ₦4,500
• Total Repayment: ₦50,000 + ₦4,500 = ₦54,500

This shows that if you hold on to the overdraft for one month, you will pay ₦4,500 in interest. The longer you delay repayment, the higher the cost becomes.

If you borrow ₦100,000 for the same 30 days, you will pay:

• Daily Interest (0.3% of 100,000): ₦300
• Interest for 30 Days: ₦9,000
• Total Repayment: ₦109,000

Clearly, while overdrafts are useful for emergencies, they can become very expensive if not repaid quickly.

What Happens If You Default on Kuda Overdraft Loan?

• Restricted Account Access – Kuda may limit transactions on your account until the debt is cleared.
• Continuous Deductions – Any money deposited will be taken automatically to offset your overdraft.
• Credit Score Damage – Your details could be sent to credit bureaus, affecting future loan access.
• Debt Recovery Measures – In extreme cases, you may face legal or external recovery actions.

How to Qualify for a Kuda Overdraft Loan

1. Active Account Usage – Deposit and spend regularly.
2. Consistent Inflows – Higher deposits increase your overdraft limit.
3. Good Repayment Record – Repaying on time boosts your chances of higher limits.
4. Complete Verification – Ensure BVN and valid ID are linked to your Kuda account.

Should You Rely on Kuda Overdraft Loan?

The Kuda overdraft is best for short-term emergencies, not long-term borrowing. Using it responsibly can help you manage unexpected expenses and build your credit profile. However, late repayment will make the debt expensive, so always aim to clear it as quickly as possible.