Bank Overdraft & Cash Credit,

Bank Overdraft & Cash Credit
Bank overdraft and cash credit facilities are both forms of short-term borrowing provided by financial institutions to individuals and businesses.

Here’s a detailed explanation of each:
1. Bank Overdraft:
i. An overdraft is a financial arrangement where a bank allows an account holder to withdraw funds from their account even if the available balance is zero or negative, up to an agreed-upon limit.

ii. It is a flexible form of borrowing, as the account holder can access funds as needed, up to the authorized limit, without needing to apply for a new loan each time.

iii. Overdrafts are typically used for short-term cash flow management, covering unexpected expenses, or bridging temporary gaps in funds.

iv. Interest is charged only on the amount overdrawn and for the period it is utilized.

v. Overdraft facilities may be secured or unsecured, depending on the borrower’s relationship with the bank and their creditworthiness.

2. Cash Credit Facility:
i. Cash credit is a type of revolving credit facility provided by banks to businesses based on their working capital requirements.