Overdraft (OD)

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Definition

An overdraft facility allows account holders to withdraw funds exceeding their balance up to a sanctioned limit. It can be secured (backed by property, FD, or securities) or unsecured. Interest is charged only on the utilized amount for the period used.

OD differs from CC in being linked to a bank account rather than pledged stock. It is commonly used for managing temporary cash shortfalls, making urgent payments, or bridging receivable delays. Limits are reviewed annually.

Frequently Asked Questions

How is OD different from cash credit? ▾
OD is linked to a bank account without stock pledging. CC is specifically against pledged inventory/receivables. Both charge interest only on utilization.
What can secure an overdraft? ▾
Property, fixed deposits, shares, mutual funds, insurance policies, or business assets. Unsecured OD is also available based on credit profile.
Is there a repayment schedule for overdraft? ▾
OD is typically revolving without fixed EMIs. Draw and repay flexibly within the limit. The limit is usually reviewed annually.
Why It Matters

Overdraft provides a flexible safety net for temporary cash shortfalls. Interest only on usage makes it cost-efficient for short-duration needs.

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