The bank provides you with a bouquet of financial services when you open a bank account– a chequebook, passbook, an ATM cum debit card, net, and mobile banking facilities. Additionally, they also offer a financial service known as the overdraft facility.
What is an overdraft facility?
An overdraft facility is an instrument that lets you withdraw money from your bank account (savings or current), even without any account balance. The bank levies an interest rate, and you have to pay it to use your overdraft limit.
Why should you consider an overdraft facility?
- It is a running account where you can deposit/ withdraw an amount anytime up to the specified limit.
- Unlike loans wherein you pay a prepayment penalty, banks allow you to pay off the overdraft without any prepayment penalties.
- Are you worried about the pressure monthly EMIs can create? You can repay the overdraft with a different amount each month whenever you have the money. The overdraft system does not function upon EMIs.
- While there are no EMIs in overdraft loans, the amount you owe should be within the overdraft limit.
- Joint borrowers may avail of overdraft limits—however, the repayment responsibility lies on both the borrowers.
- Banks fix decent repayment tenures so that you can repay the overdraft loan flexibly.
Who should use the overdraft facility?
The borrower needs to submit collateral to use the bank’s overdraft facility. Some things you can use collateral are:
- House or property
- Fixed deposits
- Life insurance policy
- Equity holdings
- Salary
Thus, anybody with any of the above assets can use the overdraft facility by using the asset as collateral.
If you want to use the overdraft facility but are unsure how to, kindly fill out this inquiry form.
Cash Credit Limit
What is Cash Credit?
Cash credit is a short-term loan a company takes from a bank. A company can have no account balance and still successfully take a cash credit loan from the bank. However, there is a borrowing limit, and a company will not get funds more than the borrowing limit. The bank charges interest on the amount the company borrows and not the borrowing limit.
Why should you consider a cash credit limit?
- Short of working capital? A cash credit limit can help you resolve any short-term capital issues.
- The cash credit limit has no liquidity issues.
- It is an easy arrangement and requires only collateral security.
- Highly flexible since you can withdraw any time, and excess cash deposit into the account gives you a lower interest rate.
- Save on your taxes since it is tax-deductible. Reduce your burden of taxes with a cash credit limit.
Interest is lower since the bank charges interest only on the money you use for your business
Who should consider taking a cash credit limit?
Consider the example of Ram.
Ram owns Company A, which is a phone manufacturer. His factory needs money to purchase raw materials and convert them into finished goods. But, the finished goods inventory is unsold. As a result, the company’s capital is in the form of stock. Ram has to meet his company’s expenses while waiting for its finished goods inventory to convert into cash. He takes a cash credit loan to run his business without a shortfall.
If you are in a similar conflict as Ram, a cash credit loan is a fantastic option for you.
Want to get a cash credit loan but not sure how to go about it? Kindly fill this inquiry form.