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Home / Business Idea / What do you mean by bank overdraft and how to use it in business?

What do you mean by bank overdraft and how to use it in business?

Overdraft account or cash credit Meaning, Facility, Limit, Loan, Interest Rate, Calculator

Overdrafts, as the name suggests, are more drafts. Banks provide overdraft facilities to their customers. According to this facility you can withdraw more money than deposited in your bank. It has a different process and some conditions of the bank have to be followed, only then you can take full advantage of the bank’s overdraft facility. Let us know in detail how a bank can get an overdraft and who can get an overdraft:

Overdraft account

Definition of overdraft

Banks offer facility called overdraft, according to which, even if you have zero money in your account, you can withdraw money from your savings account or current account. Every bank offers this facility to the customers and this is reason people avail the facility. It is said that an overdraft is a short-term loan that the customer has to repay before a certain time limit. While taking an overdraft, the customer has to give some loan to the bank on the total amount taken.

Types of bank overdraft

Authorised overdrafts- Such overdrafts are fully planned that is organised. In an authorised overdraft, there is already an acceptance between the bank and the person that the person can withdraw the overdraft money from the bank within a certain limit. For this, they have to pay some service charges and this fee can be given daily, week or even month. Mainly authorised overdrafts can be chosen, because everything is organised in it. But at times it can also be expensive, so it is important to be cautious.

Unauthorised overdrafts-Such overdrafts have no complete arrangement and all these overdrafts are unplanned. In these overdrafts, if you withdraw the amount of overdraft more than the agreement between the bank and you, then you are required to pay some fee on it later. The amount of extra charge is very high in this, which makes this overdraft even more expensive.

In what form can an overdraft be taken?

In an overdraft, if you fail to repay the loan amount on time, then the lender has the right to auction your property. The information about which overdraft can be taken is given below –

Overdraft against house- If you want to take an overdraft against your house, it is possible. The overdraft amount given on the house is 40- 50% of the current house. Before giving overdraft facility, the bank directs and inspects the value of your land and at the same time takes care of your credit past and ability to pay and gives an overdraft accordingly.

Overdraft against FD or Super Saver- If we want to take an overdraft against our fixed deposit, we can get an overdraft and it is a comfortable and beneficial facility against an overdraft against home. It is also easy for a lender to give an overdraft on a fixed deposit because the lender knows the lender better in that case. If an overdraft is taken on a fixed deposit, the loan rate is reduced.

Overdraft against insurance policy- You can get an overdraft based on your insurance, but in that case the amount of overdraft depends on the value of your insurance. If we keep our insurance amount as collateral, we can easily take an overdraft on our insurance policy.

Overdraft against equity-You can get an overdraft against equity but this method is mostly adopted because equity depends on the market and its value in the market does not remain the same and varies. At the same time, banks also pay less for overdraft on equity.

Overdraft against Monthly Income- The perk of overdraft is that you can take an overdraft even on your salary and it is also called as loan for some time. You can get two to three times overdraft on your salary, but this limit is different for every bank. To avail this service, it is mandatory for you to open a salary account in that bank.

How to apply for an overdraft?

To apply for an overdraft, you must first have a current account in the bank from which you want to take an overdraft. After this, the overdraft bank does not give it to anyone, but you have to put some claim on the bank for the overdraft, such as property etc., so that you return the overdraft money along with the required loan to the bank within a certain time period.

Required documents

Some important documents such as IT returns, proof of income, etc. of the person applying for the bank overdraft are also checked, as well as the documents submitted by you to the bank. And when all the documents are verified, then only after that the bank gives you approval to provide the facility of overdraft.

How does an overdraft account work?

If you get the approval of overdraft account from the bank, then you can get the overdraft amount from that bank. And whenever you need money, the amount is sent directly to your bank account as an overdraft.When you take an overdraft from the bank on your account, you keep increasing the outstanding balance in your account and as soon as you deposit the amount in your account, it is automatically deducted from your account, until the overdraft amount is full Does not happen and till that time the bank takes loan from you.

Interest is calculated daily on the overdraft amount that you have taken from your bank because if the borrower deposits the amount in the bank, the bank will reduce the overdraft amount taken by him without informing him. , So the amount of overdraft decreases. Due to this reason, you can have interest on overdraft amount is calculated daily because the amount of interest can change daily.

Usage of overdraft

As we all know that money can be needed anytime and if there is no money at that time, then many problems have to be faced. Although with the facility of overdraft which is given by banks, you can take money from the bank. Even if you have zero rupees in our account, you can still take an overdraft from the bank. The extent of the overdraft depends on our documents and past relationships with our bank. The bank takes loan till we have paid the overdraft amount in full. In this case, overdraft is a very beneficial feature.

What is the use of an overdraft for business?

Trading overdrafts is like a living for traders. If the amount is exhausted in a merchant’s bank account, then he can take the money for some time using a trade overdraft. This facility is most beneficial for middle-class traders. Merchants can use this service only when the amount deposited in their bank account is low and they need more amount in the transaction. In such scenario, the business overdraft facility by the bank proves to be a beneficial for the customers and you can repay it even within the stipulated time. However, you are required to give some loan on this amount.

Advantages of overdraft

This process is easier than the process of taking a loan and is also flexible. For this, you only have to open an overdraft account with the bank. Also, you can pay the overdraft amount at any time and from that time you will stop getting loaned. The interest charged on the money taken through the bank’s overdraft facility is calculated daily. If you have deposited some money in the account today, then the overdraft amount will be reduced and you have to pay interest for the current amount and not for the entire amount.

It is said that the facility of overdraft is like a life giving facility offered by the banks. You can borrow money from the bank even if there is less or zero money in your account. This facility is most beneficial for traders. So, if you want to take this facility then you can definitely take it.

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