Give me 3 differences between loan and overdraft
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(1) An overdraft facility is a credit given to the individual or company on a current account. The amount you withdraw can vary every day based on your requirement. It is similar to a credit card spending. You can borrow as much as you need upto your credit limit.
(2) In overdraft, the interest rate is charged only on the overdraft amount borrowed not on the limit of the overdraft facility; whereas in Loan, the interest is charged on the entire amount borrowed, whether or not you have completely utilized it. Note that the interest charged on OD is higher than loans.
(3)Overdraft is ideal for working capital requirements like day to day fund requirements, but loan makes sense for capital investments like a new machinery or new building.
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