Cash Credit vs. Overdraft: Know the Difference

Money Credit score (CC) is a short-term mortgage supplied to firms, companies, and monetary establishments to fulfill their working capital necessities. An Overdraft facility is credit score funding supplied by Banks to people and corporations to withdraw cash from the banks wherein they’ve accounts, even when their account stability is low, zero, or beneath. Usually, Money Credit score and Overdraft are thought of comparable credit score services, nonetheless, there are some main variations between each of those monetary devices as mentioned beneath:

Distinction between Money Credit score & Overdraft

Money Credit score
Overdraft

Decrease Curiosity Charges
Greater Curiosity Charges

Availed on hypothecation of shares and stock
Availed on the idea of account holder’s financials, credit score historical past, relationship with the financial institution, and investments like FDs, insurance coverage insurance policies, and so forth.

Availed for majorly enterprise functions like working capital
Availed for common functions, together with business-related as nicely

Mortgage quantity relies on the quantity of shares and stock
Mortgage quantity relies on the financials and safety deposits

Restrict doesn’t reduces over time
Month-to-month discount within the case of Overdraft

To avail Money Credit score, a brand new account must be opened
Overdraft facility is availed on the prevailing account of the applicant (account holder)

Availed for at least 1 12 months
Availed for shorter tenure like a month or quarter, most of 1 12 months (With Yearly Renewal possibility)

Availed by people, retailers, merchants, producers, distributors, firms, partnerships, sole proprietorships, LLPs, and so forth.
Availed by account holders of the respective financial institution

Quantity sanctioning relies on the enterprise efficiency and market conditions
Overdraft Restrict is sanctioned based mostly on monetary statements and safety deposits

Apply for Overdraft from main Banks
Apply Now

Money Credit score and Overdraft are known as credit score limits sanctioned by banks whereby each of those monetary devices can be utilized to avail funds in opposition to the hypothecation of stock in case of Money credit score and monetary statements of the account holder(s) for Overdraft.

Factors to Bear in mind:

Processing Charge: Preserve a test or evaluate the processing charge charged by the lender, as it might differ from financial institution to financial institution
Curiosity Price: The rate of interest charged by lenders for Money Credit score loans is decrease, as in comparison with an Overdraft facility
Mortgage Quantity Utilization: Money credit score provides an outlined restrict relying on the hypothecation of shares, whereas there are few banks that cost additional quantities on the unutilized mortgage quantity after a sure time interval
Foreclosures prices: Some lenders do cost foreclosures prices if the borrower needs to shut the quantity. On this case, debtors must pay a sure share of the mortgage quantity to shut their mortgage account which ranges from 1% to 2% normally

Subsequently, it is suggested to test all the extra and hidden charges and prices levied by the monetary establishment earlier than opening a brand new account or availing Overdraft facility on an current account. Lengthy-term funding is commonly supplied at low-interest charges and short-term funding incurs larger rates of interest.

Apply for Money Credit score from main Banks/NBFCs
Apply Now

Similarities between Money Credit score & Overdraft

The rate of interest supplied by the lender for Money Credit score and Overdraft is charged on the amount of cash utilized and never on the sanctioned quantity or restrict
Money Credit score restrict and Overdraft quantity are repayable on demand
Each of those monetary instruments are supplied in opposition to the safety of present property
The mortgage restrict/quantity sanctioned stays fastened and extra cash can’t be withdrawn in each circumstances

Money Credit score and Overdraft are thought of to be the 2 most significant monetary instruments to fulfill the short-term, in addition to long-term necessities of a person or firm. Each of those merchandise look fairly comparable and nonetheless are differentiated in varied monetary elements. Money Credit score and Overdraft are thought of to be common sorts of enterprise loans whereby minimal documentation is required.