What is an overdraft? (2024)

FAQs

What is an overdraft? ›

An overdraft occurs when there isn't enough money in an account to cover a transaction or withdrawal, but the bank allows the transaction anyway. Essentially, it's an extension of credit from the financial institution that is granted when an account reaches zero.

An overdraft occurs when you don't have enough money in your account to cover a transaction, but the bank pays the transaction anyway.

An overdraft allows you to borrow money using your current account, so you can spend more money than is in your account.

Overdraft. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn."

An overdraft lets you borrow money through your current account by taking out more money than you have in the account – in other words you go “overdrawn”. There's usually a charge for this.

An overdraft occurs when an account lacks the funds to cover a withdrawal, but the bank allows the transaction to go through anyway. The overdraft allows the customer to continue paying bills even when there is insufficient money in their account. Many banks impose additional fees or penalties for overdrawn accounts.

A bank overdraft is as same as a bank account that can have a negative balance, up to the sanctioned overdraft limit. Example: If your bank account has Rs. 10 lakh in the bank and you withdraw Rs. 12 lakh for business purposes, an overdraft loan is a by-default loan for the extra Rs.

If you had, say £10 in your account, and you took out £500, your balance would say £490 overdrawn. You don't have to make a payment back every month, as you would for a loan, and you will have the overdraft for as long as you originally agreed it for - which might be several years.

If you overdraw your checking account, the bank can pull funds from your savings to cover the shortage, as long as you have enough funds available. Your bank may still charge you a fee for transferring the funds automatically, but it is typically less than an overdraft charge.

Drawbacks of an arranged overdraft:

Your overdraft limit is likely to be lower than what you could expect to borrow with a credit card or personal loan. The interest rates on an overdraft may be higher than those on a credit card or personal loan, especially for long-term borrowing.

Why is it called overdraft? ›

An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. In these situations the account is said to be "overdrawn".

A situation wherein an individual's bank account balance goes down to below zero, but the transaction still went through.

An overdraft lets you borrow extra money through your current account. For example, if you have no money left in your account and you spend £30, your balance would be -£30. This means you're using an overdraft. An overdraft is a form of debt and is repayable on demand.

The customer who maintains a current account with the bank takes permission from the bank to withdraw more money than deposited in his account. The extra amount withdrawn is called an overdraft.

An overdraft occurs when you don't have enough money in your account to cover a transaction and the bank pays it. Examples are overdrafts caused by check, in-person withdrawal, debit card purchase, ATM withdrawal, or other electronic means.

Overdraft Facility is a credit-based facility offered by various banks and financial institutions. With overdraft, you can withdraw money from your Current or Savings Account even if the account balance has bottomed out and gone below zero.

Kids Definition

overdraft. noun. over·​draft ˈō-vər-ˌdraft. : an overdrawing of a bank account or the amount overdrawn.

Bank overdraft can be regarded as a short term financing instrument which can be availed by a bank account holder with a bank. It is not purely a loan like the conventional loan types, for eg home loan, business loan, personal loan, etc.