Cash Credit vs Overdraft: Key Differences Every Borrower Should Know
Cash Credit is a bank loan against current assets; Overdraft is permission to withdraw more than your account balance.
People confuse them because both feel like extra money on tap, yet the fine print changes how you repay and what the bank can seize if things go south.
Key Differences
Cash Credit needs pledged inventory or receivables; Overdraft relies on your banking history. Interest is calculated daily on the used amount in both, but Cash Credit often has a longer tenure and may involve renewal paperwork, while Overdraft can be called in anytime.
Which One Should You Choose?
Need predictable working capital for stock or invoices? Pick Cash Credit. Want a safety net for occasional cash-flow hiccups? Use Overdraft. Match the product to how often and how long you need the buffer.
Can I have both at once?
Yes, banks may offer each facility on separate accounts if your profile supports the risk.
Is collateral always required?
Cash Credit typically needs asset backing; small Overdraft limits may be granted without collateral.
Does unused limit cost anything?
Usually no interest is charged until you dip into the funds, though an annual fee can apply.