Overdraft Account or Cash Credit Meaning, Facility, Limit, Loan, Interest Rate, Calculator
Overdraft means the availability of more drafts that banks offer to customers. As per this, customers are allowed to withdraw more than they deposit in their account. It can be accomplished following the procedure as stated by the concerned bank. In this, customers will get the advantage of bank’s overdraft facilities. As you go through the following part of the article, you can know better about how this draft functions and what benefits you can get from it.
What is Overdraft ?
Overdraft facility is given by the banks. Due to this, customers can withdraw money from the bank even when he or she has no balance in the account. The overdraft benefits can be availed by both savings and current account holders. The other name of this draft is a short-term loan that a customer has to repay within the stipulated time given by the bank.
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Types of Bank Overdraft
- Authorised overdrafts – In this type of overdraft, there is an acceptance between the customer and bank in which the customer can withdraw the money in the stipulated time given by the bank. In this relation, customers have to give some fees or services charges weekly, daily or monthly. Though customers can avail of the primarily authorized overdrafts it can be expensive compared to the rest.
- Unauthorised overdrafts – This is an incomplete overdraft system as most of the overdrafts are unplanned. In case, you end up withdrawing more money than what is mentioned in the agreement, you have to pay some fees later on. In this case, the fee charges are higher making the overdraft an expensive affair.
In what form can an Overdraft be taken ?
In case the customer is unable to repay the loan amount within the given time, the lender can auction any of your properties. The lists of properties that can be auctioned are mentioned below –
- Overdraft against house – If you are taking overdraft money on the basis of your home, you can get 40 to 50% of your home. In this, the bank shall inspect the condition and value of your home. After this, the amount will be credit in your account.
- Overdraft against FD or Super Saver – Customer can get overdraft against fixed deposit and look for better benefits. In this case, you need to produce the details of your fixed deposits, depending on which the bank will grant you the overdraft. Even the overdraft taken on a fixed deposit is easy for the loan rate.
- Overdraft against insurance policy – You can get overdraft against insurance policy. However, the overdraft amount can vary depending on your insurance amount. In case the amount is kept is collateral, it is possible to get an overdraft against the policy.
- Overdraft against equity – In this, it depends on the equity amount of the market and its price. It varies as it does not remain constant. Also, it may happen that the bank is paying less considering the equity.
- Overdraft against Monthly Income – When you take overdraft against your salary and it is termed as debt. In this regard, you can two to three times overdraft against your salary but here, the limit of the overdraft varies from bank to bank. For this, it is mandatory to open a salary account with the concerned bank.
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How to apply for an Overdraft?
- To opt for an overdraft, it is mandatory to open current account in the bank from which you wish to get overdraft.
- After this, you have to put forward some claim in order to get the overdraft from the bank against property or other auctions. By this, the bank bounds the customers to return the money within the given time along.
Customers have to produce related documents such as IT returns, income details and the like when applying for the bank overdraft. Only after checking the relevant document, the bank will grant the overdraft to the customer.
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How does an Overdraft Account Work?
- Only after suitable approval for overdraft from the bank, customer can get it whenever they are in need of money. Here, the overdraft amount will be directly credited in the account of the customer.
- By taking an overdraft, customer increases the outstanding balance in their account as the amount in the balance starts to get deducted. It continues to happen until the overdraft amount is cleared and the loan is repaid.
- Overdraft interest is calculated on daily basis. This is because in case the customer deposits some money in the bank account, the bank will start to reduce it for the overdraft loan due. This way, the overdraft amount may decrease and for this, daily interest is charged on the overdraft loan that customers take from the bank.
Usage of Overdraft
You may be in need of money at any point in time, and during emergencies, bank overdrafts help. You can get overdraft from the bank even when you have zero balance in your account. However, you have to submit a suitable supporting document to claim that you are in need of money. Adding to this, you also promise that you are going to repay the money within the given time along with the promised interest rate decided by the bank.
Business overdraft Facility
Trading overdraft is almost like trading for overdrafts. In case the money is exhausted in a merchant’s account, he or she can take the money through a trade overdraft. This is common among the middle-class traders.
However, merchants can take help from this method if they have a low bank balance, and they are in need of money in the transaction. In such a case, the business overdraft facilities help the customers and they are able to repay the money within the given time.
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What are the Benefits of Overdraft?
- The overdraft process is considered to be easier than taking a loan from the bank. The prerequisite for the overdraft is opening an overdraft account in the bank. Also, the customer has to assure that they can repay the overdraft money within the stipulated time to the bank. Otherwise they will not get any loan from the bank.
- The interest charged on the overdraft money is calculated on daily basis. However, if you deposited some money in the bank, it may happen that the overdraft money gets reduced from the account. Here, you have to pay interest to the current amount instead of the entire amount.
The benefit of overdraft from a bank is helpful for customers when they are in urgent need of money. They can opt for the money without any amount in their bank’s current or savings account. However, they have to repay the overdraft money within the given time to avoid paying any unwanted amount of interest.