Difference between Cash Credit & Overdraft

Know Differences between Cash Credit & Overdraft

The major difference between Cash Credit & Overdraft is dependent on various factors like
– Purpose
– Who can obtain it
– How can it be obtained
– Security,
– Interest Rate,
– Limit

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.

key differences between cash credit & overdraft

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:


Cash Credit



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

Interest Rate

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

Also Read: TDS On Cash Withdrawal From Bank In A Financial Year

Eligibility & Document Requirements for Cash Credit and Overdraft


Cash Credit



  • Cash Credit

  • 3 years of experience in business

  • Borrower should have monthly income of Rs. 35,000/-

  • He should be in the same job at least for six months

  • He should have at least 2 years of work experience

Documents Required

  • Income Tax Returns for at least 2 years

  • Submission of collateral (eg: real estate papers)

  • Chartered Accountant certified financial statements

  • Bank statements of at least 6 months

  • Record of previous loan, if applicable

  • ID Proof

  • Any other documents, as required by the lender

  • Copies of salary slips of 3 months

  • Proof of income

  • Bank statements for 3 months

  • ID Proof

  • Residence Proof

  • Any other documents, as required by the lender

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