Overdraft and Cash Credit Account both are the type of loan accounts in which the account holder can withdraw the amount he requires. Borrower has to pay the interest on the amount withdrawn from account. Cash credit is normally given on security of stock, debtors etc. It should be used for the purpose of business and balance sheet, p&l account, VAT return is required to be submitted to bank generally quarterly or annually. Overdraft is normally given on security of a fixed asset and it can be used for any purpose. Financial statements are generally not required to be resubmitted after approval. Both are secured line of credit with a lender.
An overdraft occurs when money is withdrawn from a bank account in an amount that exceeds the funds available in the account. Banks often permit this as a form of short-term loan to the account holder.
Usually this situation happens when a person writes checks which total more than the balance in their checking account. The bank often covers the checks and allows the customer to deposit more funds into the account to cover the negative balance. Rather than charging an overdraft fee, the bank will charge interest on this short-term loan.
Customers may pay for overdraft protection on their accounts so that banks will not bounce their checks when there are not enough available funds to cover them. Usually the bank requires the checking account to be linked to another account, such as a savings account. When an overdraft occurs, funds are automatically transferred from the savings account to cover the overdraft in the checking account.
Dropline overdraft means a facility which a borrower can avail from different banks. These are new generation overdraft facilities which have both the features of Term Loans & Overdraft Facility, these limits can be for a period of 10 years where the drawing power of the borrower is reduced on month on month basis.