Define the term 'cash credit'.
Answers
Secured overdrafts act more like a traditional loan. As with a cash credit account, money is lent by a financial institution but a wider range of collateral can be used to secure the credit. For example, you might be allowed to use mutual fund shares, LIC policies or even debentures.
Explanation:
Cash credit is a means of withdrawing money from a current bank account without credit balance, but limited to the extent of the commercial bank's borrowing limit. The interest on this loan is paid on the operating balance rather than the bank's borrowing cap.
The lender may withdraw cash credit loans as many times in a certain period of time, up to the lending cap. Banks provide businesses with cash credit loans based on their creditworthiness, which is measured by their current assets and liabilities.