Overdraft is a financial instrument for lending when savings or current account reach zero. Most banks offer an overdraft limit based on the client’s existing relationship with the bank. The bank also invoices interest and fees on exceeding the account overdraft limit.
In general, there are two types of red mode: safe red mode and uncovered red mode.
• Secure releases: secure overdrafts are overdrafts that are taken care of about its current account or its current account.
• Unsecured releases: overdrafts that are not taken against any warranty are called unsecured overdrafts.
An overdraft facility allows customers to use or withdraw money from their account up to the approved limit. It operates as an approved loan where interest is only charged on the amount used. An overdraft facility helps individuals and the self-employed to solve short-term cash flow problems. Customers can benefit from the overdraft facility via various platforms such as a mobile application, Internet banking services or the visit to the banking branch. The characteristics of the overdraft installation are as follows
Credit limit: The credit limit of each borrower varies from bank to bank. The limit is predetermined for the customer relationship with the bank Interest rate: The interest rate on a credit loan is calculated on the basis of the red position used. The amount is calculated daily and billed at the end of the month. If the red position limit is not paid on time, the fine is added to the capital.
Prepayments: There are no prepayments for using a credit facility.
Repayment: Credit drawn through a credit facility is not paid to the EMI. Customers can pay the credit limit cumulatively.