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Shivani Mishra made post

An overdraft can be defined as?

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Anjali Desai answered.
10 months ago


An overdraft is said when the money is withdrawn from the account holder's bank account more than the available balance. To avail this facility the account holder is asked to undersigned a prior agreement with the account provider for an overdraft.
In overdraft, the withdrawal of the amount is allowed to a certain limit, if the amount goes beyond the limit interest is charged at the agreed rate.


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Siya Saran answered.
10 months ago


The word overdraft means the act of overdrawing money. Overdraft is a type of bank account facility which allows the account holder to withdraw a limited amount of money from the bank account even when there insufficient fund or no cash balance in his account. The banks sanction a specific limit up to which an account holder can withdraw or can go negative and that limit is termed as Overdraft limit. Normally, the overdraft facility is secured by a fixed asset or property. It is the most common borrowing that is made available to the customer. It is also termed as Demand loan as the money is available to the customer when needed.

This facility is provided to the existing current accounts for a fixed period of time after the expiry of the overdraft period it must be renegotiated. Accountholders can make as many as transactions up to the sanctioned overdraft limit. Overdraft money can be used for any purpose. The rate of interest in overdraft accounts is higher than the other loan facilities. The account holder has to pay the interest only on the daily overdraft balance due at the end of the day. Some banks also levy minimum usage charges if the facility is not utilized up to a certain limit.

If the Overdraft is secured by a fixed asset, banks can take over the charge of the asset in case of failure of payment by the account holder. The Banks can cancel this facility at any time and demand the entire outstanding amount at its own discretion without giving any notice to accountholder in following cases:
- Fall in the Credit rating of customers.
- Banks have reason to believe that the borrower can default in payment.
- Balance of accounts from which the funds are withdrawn has exceeded the fund deposited.