In this fast-evolving world, people need credit which is readily available to meet their financial requirements or for some other urgencies. Credit fulfils various purposes of an individual and provides him/her with a means to meet his/her financial obligations. Without adequate credit at the time of need, many businesses would fail to rise and many people would find themselves in deep financial crisis. One of the most popular means of availing a credit is a Temporary overdraft. Therefore, let us understand what an overdraft is; and how it can help?
What is an Overdraft?
An overdraft facility means a credit facility which is usually provided to an individual who has a current or savings account with the respective bank. In short, an overdraft is a credit arrangement that allows an individual to use or withdraw more money from his/her current accounts in the bank, even when the balance is zero or below. Such a facility is given by a bank in order to help the customer withstand any financial crises which may arise from an unexpected event like immediate payment to the creditor, an early settlement of their previous loan, purchase of gifts for an impending wedding, unplanned travel expenditure, medical expenses, and many more. It can also be in concern to some major unfortunate events in one’s life, such as any unexpected death in family, accident, business failure, fire breakdown or anything uncertain.
For availing an overdraft facility, the individual does not have to offer any of these assets to the bank, including cars, houses, insurance policies, shares, bank’s fixed deposits and bonds, etc. However, the interest rates charged and overdraft sanctioned to the customer by the bank can vary. Some banks charge the interest rate on the exact amount that is withdrawn for use or charge such interest on the reducing balance basis.
What is a Temporary Overdraft?
If a customer wishes to avail a short-term credit, he/she can go for a temporary overdraft. A temporary overdraft helps him/her cover an immediate need for cash and fills any financial shortfalls that the person might be facing. Usually, a temporary overdraft comes with the following features:
- One can avail a temporary overdraft for short periods of time (Up to two months).
- An interest charge might be applicable on the amount of temporary overdraft, based on the number of days for which it is taken. This charge shall vary from bank to bank.
- Usually, banks do not require security or collateral for providing a temporary overdraft.
A temporary overdraft is a very useful facility that allows people to take financial help from a bank, which is different from a loan. It helps in meeting the short-term financial needs of a customer and is best suited for people who require immediate funds or credit.