Overdraft

An Overdraft (OD) is a short-term credit facility provided by banks, enabling individuals or businesses to meet urgent financial needs. The borrower can withdraw funds beyond their account balance and repay later.

Interest is charged only on the amount used, not the entire limit. Overdrafts are regulated by the Reserve Bank of India.

Key Features of Overdraft

• Withdraw beyond account balance
• Pre-approved credit limit
• Interest charged on used amount
• Flexible repayment

Types of Overdraft

• Secured Overdraft: Backed by collateral (FD, property)
• Unsecured Overdraft: Based on creditworthiness

Overdraft vs Loan

• Overdraft: Flexible, revolving usage
• Loan: Fixed amount with fixed repayment schedule

Why Overdraft Matters

• Helps manage short-term cash flow
• Useful for emergencies
• Supports business operations

Risks

• High interest rates
• Risk of over-borrowing
• Penalties for non-repayment

"If your bank account has ₹5,000 but your overdraft limit is ₹20,000, you can withdraw up to ₹25,000 (₹5,000 + ₹20,000)."