Overdraft Facilities
What Is an Overdraft?
An overdraft takes place when a transaction or withdrawal exceeds the available balance in an account, but the bank still permits the transaction to go through. In essence, it acts as a credit extension from the financial institution when the account balance reaches zero. This allows the account holder to continue making withdrawals even when the account has insufficient funds to cover the amount of the withdrawal.
With an overdraft account, a bank is covering payments a customer has made that would otherwise be rejected, or in the case of actual physical checks, would bounce and be returned without payment.
Why Overdraft Facilities?
Avoid Transaction Failure
With access to overdraft facilities on your account, you can conduct transactions even when your account balance becomes zero, thus avoiding dishonor charges.
Dynamic Repayment
Overdraft facilities allow you to repay the borrowed amount at your convenience and don’t enforce any monthly payments. You can pay the amount back partially or in full, as per your financial condition and preferences.
Interest on Borrowed Amount
Another advantage of overdraft facilities is that the daily interest is charged only on the borrowed amount and not the full principal, as is the case with other types of loans.