Question

difference between cash credit and bank overdraft
at least 4 points

Answer 1

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$\huge{{\bold{Cash Credits}}}$

Cash credits are more commonly offered for businesses than individuals. They require that a security be offered up as collateral on the account in exchange for cash. This security can be a tangible asset, such as stock, raw materials or another commodity. The credit limit extended on the cash credit account is normally a percentage of the value of the collateralized security.

Sometimes a financial institution offers a cash reserve account but calls it a cash credit. Cash reserves are unsecured lines of credit that act like overdraft protection. They typically offer higher overdraft limits and have smaller real interest costs on borrowed funds than overdrafts, since penalty fees are not triggered for using the account.

It is common for cash credits to be renewed annually for a business line. However, an account holder's access to overdraft protection is reviewed annually and may or may not be re-approved by the bank.

$\huge{{\bold{overdraft}}}$

There are several different types of overdrafts but the two most common are standard overdrafts on checking accounts and secured overdraft accounts that loan cash against various financial instruments.

A standard overdraft is the act of withdrawing more funds from an account than the balance would normally permit. If you have $30 in a checking account and withdraw $35 to pay for an item, a bank that permits overdrafts covers the $5 and typically charges you a fee for the service. You are generally charged a separate fee for each purchase in excess of your account balance.

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. There are also clean overdraft accounts, in which no specific collateral is offered but overdrafts are permitted due to the net worth of the individual. Generally speaking, this is only possible when the borrower has a large account at the financial institution and enjoys a long-standing relationship.

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Answer 2

Cash credits are more commonly offered for businesses than individuals. They require that a security be offered up as collateral on the account in exchange for cash. This security can be a tangible asset, such as stock, raw materials or another commodity. The credit limit extended on the cash credit account is normally a percentage of the value of the collateralized security.

Sometimes a financial institution offers a cash reserve account but calls it a cash credit