The major difference between Cash Credit & Overdraft is dependent on various factors like
– Who can obtain it
– How can it be obtained
– Interest Rate,
Cash Credit is a type of short term loan given to business undertakings to satisfy their everyday working capitals and on the other hand, Overdraft is a facility given by the bank to borrower (individuals, firms, companies or others) to withdraw money from the banks even if balance in his bank account is low, zero or below the amount to be drawn.
Difference between Cash Credit and Overdraft
The Cash Credit and Overdraft, both of these instruments are used to borrow funds. Following are the differences between the two:
It can availed for business purposes, only
It can be availed for any purpose, including business related requirements
Who can obtain it?
It can be obtained by individuals, retailers, traders, manufacturers, distributors, companies, partnerships, sole proprietorship, LLPs, etc.
It can only be obtained by account holders of the respective bank
How can it be obtained?
It can be obtained on hypothecation of stocks and inventory by opening new account
It can be obtained through existing current accounts, based on credit history, relationship with bank and investments like FDs, insurance policies, etc.
Loan amount is based on the volume of stocks and inventory
Loan amount is based on financial statements and security deposited
Lower Interest Rate
Higher Interest Rate
The maximum amount is calculated as a percentage of sales debtor and stocks given by financial institution
The maximum amount allowed is calculated mainly on the basis of financial statements and securities
Eligibility & Document Requirements for Cash Credit and Overdraft
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