Avail personal loan at attractive interest rates starting from 10.5% *p.a.
Avail personal loan at attractive interest rates starting from 10.5% *p.a.

Overdraft (OD) / Cash Credit (CC)

Overdraft (OD) facility is for current account holders wherein the customer can draw excess amount than what is standing to their credit. This means that the bank permits the customer to debit his current account below zero. But, the customer can withdraw only up to a specified limit.

Granting of loans is among the major functions which commercial banks perform. Post maintaining cash reserves as per RBI norms, banks can lend their deposits to those in need. Banks provide such loans and advances against approved security for productive purposes so as to earn interest. Cash Credit and Overdraft are two such short-term loan arrangements.

Cash Credit (CC) is a loan account opened by the customer with the bank. The cash credit limit depends upon the assets’ collateral. The limit is flexible, i.e. the banks have the authority to increase or decrease this limit. For this facility, banks charge interest on the actual amount used.

Points to be considered while taking a CC or OD account facility:

  • Rate of Interest – Rate of interest is higher than fixed loans like Loan against property (LAP) therefore if you generally don’t have extra money to park in cc or od account then you should opt for LAP.
  • Minimum usage condition – Some bank levies charges if the cc or od account is not utilized upto a certain limit. For example you take an OD account of Rs. 10 lakhs and average use during the year is not 30% i.e Rs. 3 lakh then charges are levied.
  • Account closing charges – Some banks also levies a percentage of loan amount as charges called foreclosure charges if you want to close the account. This generally ranges from 1% to 2%. If your bank levies 2% foreclosure charges then its not beneficial for you to shift to other bank even if other bank gives you a better interest rate.
  • Interest Servicing – Some banks required the customers to deposit the interest of the month in the account through cash or cheque deposit within a few days of the next month.

Similarities between Cash Credit & Overdraft:

  • The interest rate offered by the lender for Cash Credit and Overdraft is charged on the amount of money utilized and not on the sanctioned amount or limit
  • Cash Credit limit and Overdraft amount are repayable on demand
  • Both of these financial tools are offered against the security of current assets
  • The loan limit/amount sanctioned remains fixed and additional money cannot be withdrawn in both cases