Overdrafts

Overdrafts are a form of credit granted by banks. It is given to the current account holders. Through this overdraft facility, the account holder can withdraw more than the balance available. That is the cash-borrowing limit is much higher than any other accounts. It is an idle account for business people since they may need extra funds at any time. It is a short term funding vehicle for the business till some other availability of money is made. Here, no interest is receivable. Interest is payable on the borrowed money that is the outstanding balance of the account. Such interest is much higher & hence overdrafts are considered as expensive. But if quicker fund is required for business purpose overdraft, is an ideal way for obtaining finance for a short term.