Give four differences between overdraft and cash credit.
Answers
Key Differences Between Cash Credit (CC) and Overdraft (OD)
The following points are noteworthy so far as the difference between cash credit and bank overdraft is concerned:
1. The withdrawing facility provided by the bank in which the person can withdraw amount more than what he holds to his credit, against the hypothecation of stock or any other collateral security is known as a cash credit. Overdraft is another withdrawing facility in which the bank allows the customer to withdraw amount more than more than what he holds to his credit, but only up to a certain extent is known as Overdraft.
2. The Cash Credit is divided into two categories, i.e. Key Cash Credit and Open Cash Credit. The Overdraft is divided into two types, i.e. secured overdraft and clean overdraft.
3. For availing cash credit facility, the borrower must have a cash credit account with the bank or financial institution. Conversely, Overdraft facility can be availed by the borrower, if he has a current account with the bank.
4. Cash credit facility is given against the pledge or hypothecation of inventory or other current assets or collateral security. Overdraft facility is given against the security of fixed assets (if securitised).