BANKING AFFAIRS

Detailed explanation-1: -An overdraft lets you borrow money through your current account by taking out more money than you have in the account – in other words you go “overdrawn”. There’s usually a charge for this. You can ask your bank for an overdraft – or they might just give you one – but don’t forget that an overdraft is a type of loan.

Detailed explanation-2: -There are two basic types of overdrafts – secured and unsecured. While the former requires assurance in the form of collateral, the latter only needs the borrower to hold an account with the lending bank. The banks charge a processing fee initially and then impose interest on the sum overdrawn or the borrowed amount.

Detailed explanation-3: -A bank overdraft is as same as a bank account that can have a negative balance, up to the sanctioned overdraft limit. Example: If your bank account has Rs. 10 lakh in the bank and you withdraw Rs. 12 lakh for business purposes, an overdraft loan is a by-default loan for the extra Rs.

Detailed explanation-4: -Overdraft loan is a facility through which a customer is authorised to withdraw funds from the current account, even if the balance is zero; but only up to a certain limit. Term loan refers to a loan where a fixed amount of money is borrowed for a specific period. This money is to be paid back with interest.