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    Thread: what is overdraft?

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      Default what is overdraft?

      in the banking sector, there is a term called "overdraft", what does this mean? is this facility available to all bank account holders?


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      Overdraft are issued by Banks around the World and it is the financial act of extension of credit from a lending institution when an account balance of the owner of the account is withdrawn to Nil and that there is no longer any Money in it. An overdraft allows the individual or Company to continue withdrawing money even if their account balance is empty with no funds. Basically, overdraft means that the bank allows customers to borrow a set amount of money that have been predetermined and signed between the bank and the owner of the account. Overdrafts are advantageous and suits many young businesses that have less access to fund. Overdrafts helps entrepreneurs grow as well not to default on any payments that can affect their business negatively.


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      Over Draft : is a concept we always tell it when we withdrawn money from our bank account exceed our deposited balance for example if our balance in our account was 1000 dollar and we withdrawn 2000 dollar from our account we will see that our account balance became below zero and it will be ( - 1000 dollar ) this is called over Draft and it always have prior agreements between the account holder and the bank on the interest rate and the money that he can withdraw it based on Over draft system by negative but if the money exceed the agreements balance the bank may add extra Fees .

      And these facilities not available to all bank account holders because it only available for :

      1- Bank account holders with fixed deposit : as the customers who make saving certificates or fixed deposits they can make credit cards with their saving certificates guarantee and at same time they can take a loan or any balance by negative balance of buy over draft system by the guarantee of these fixes balances or these saving certificates .

      2- Bank account holders who have big businesses : They can take loans or financing with negative balance or with overdraft system by the guarantee of their companies or their properties .

      3- Getting overdraft facilities against : your salary or your home or your car all these things you can get loan or money with negative balance by over draft system against these things .


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      Overdraft is cash withdrawal when you do not have sufficient funds available in your account to fund checks or other withdrawals but bank still pays and debits your account. The understanding is almost the same as you do loans on bank but different concepts.

      Example: I have an overdraft loan of $1000 then the money i did not take or use is still in the bank and only i take when at any time needed. Is it when we do not take or borrow the money we will get interest? the answer is of course not. We only get interest if we take the money and we only get interest as long as we take or borrow the money. Suppose i have an overdradft loan of $1000 and i take or borrow a sum of $100. I returned after 5 days then i only charged interest amounting to $100 x the amount of interest for 5 days. Maybe it costs about $5 and this does not need any provisioning and administration fees.

      So this overdraft is more profitable when compared to when borrowing money from the bank directly in a certain amount but it would be better if we do not have loans to anyone or at a particular agency.
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      Default

      what is overdraft?
      In simple words, Suppose you have $100 in your bank account. If you withdraw $150 from your account then it will be considered as overdraft. That means your available balance goes below the zero level. It becomes negative entity. Usually a bank provides a certain amount of money for this overdraft. They will charge a fixed interest for that. But it varies. Such as-

      1. When you open a corporate bank account, they will give you a form where you have to fill up that how much you want to withdraw if you have zero balance. Suppose, you choose $5000 overdraft amount. If you withdraw that amount from your account then they will charge a fixed interest.

      2. On the other hand if you withdraw more than $5000 limits then they will charge you extra interest.

      You need to repay the overdraft amount within certain period of time to avoid extra charge/interest.


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      Overdraft refers to a withdrawal of money that is greater than the available balance in an account. Banks can provide overdraft protection, which is a service that allows a withdrawal to occur even though there are insufficient funds in the account.
      Explanation

      When an overdraft occurs in a business setting, the transaction is typically added to accounts payable, which is a current liability. If an overdraft is material, it should also be disclosed in the notes to the company's financial statements.

      Bank overdrafts occur for a number of reasons, which can be grouped into the following categories:

      Errors: failure of the accountholder to maintain accurate records of deposits and withdrawals, incorrect charges from merchants to a debit card, as well as bank processing mistakes.
      Fraud: stolen cards or identity theft, allowing for unauthorized withdrawals of funds through cheques or ATMs.
      Unknown Transactions: unexpectedly high bank fees, deposits placed on hold by the bank, returned cheques (insufficient funds).
      Planned: accountholders may use overdraft protection as a means of obtaining a short-term loan.
      These means that there are two major categories of Overdraft:
      Authorised overdraft: an arranged overdraft with your bank that lets you borrow up to a certain amount. Normally cheaper than unauthorised overdrafts.
      Unauthorised overdraft: where you havenít arranged an overdraft with your bank or gone over your authorised amount. Normally more expensive than authorised overdrafts.


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      The essence of having a bank account is to have some money available for withdrawal as the needs may arise. There are some cases whereby what is available in the account may not be enough to meet ones pressing needs at a time and thus one may wish to obtain a loan. In some other cases if there is a regular income into the account and the bank is sure but at the point of need the money is not yet available a bank may allow its customer to withdraw more than the available amount at that point. This may lead to a deficit in the account. This process of drawing more money than the account holds is referred to as overdraft


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      what is overdraft? Overdraft is a form of loan granted to interested individual usually for a very short period by banks and other financial institutions. This loan is granted on memorandum of understanding between the two parties.A bank account with regular income [usually salary account] enjoy this offer .Before your salary is ready,you are not having enough fund to meet your needs,you may request for an overdraft until your salary surface.The terms and conditions are quite simple ,it attract very low interest rate.


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      An overdraft occurs when we don’t have
      enough money in our account to cover a bank
      transaction, but the bank pays the transaction.
      With an overdraft we get to perform transaction through the use of checks,
      ATM transactions
      debit card transactions
      Online purchase
      automatic bill payments
      in-person withdrawals withdrawal at the banks branch.

      But this doesn't comes for free, as the bank also charge fees for overdraft depending on the amount of overdraft we use, so it's important that we. Know their rate before taking an overdraft.
      If we don't pay our overdrafts back in a
      predetermined amount of time, then the case will be transferred to the collection agency.


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      Overdraft is the credit extension granted by a bank to a customer to withdraw an amount above that held on the bank by that customer. Interest is charged on such overdraft just as in a normal loan transaction, albeit with higher interest rate.

      Overdraft enables the customer of the bank to obtain credit facility without the gruelling and lengthy bureaucratic protocols that are often involved in such transactions. It is very useful for the purpose of meeting up with emergency financial problems that could potentially spell disaster if not attended to in a timely manner. The type of account often associated with an overdraft is the current account.
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