Exercises · Q5
Q.Distinguish between cash credit and overdraft.
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Start your 14-day free trial to unlock the full solution →Cash credit and overdraft are both flexible borrowing facilities, but they differ in structure and purpose.
| Basis | Cash credit | Overdraft |
|---|---|---|
| Account type | A separate credit account opened against security | Allowed on an existing current account |
| Security | Usually secured against stock, receivables or other collateral | May be granted with or without collateral, based on relationship |
| Purpose | Meeting ongoing working-capital needs of a business | Meeting a short-term, temporary cash shortfall |
| Duration | Generally a longer-running facility, reviewed periodically | Generally a short-term facility |
| Interest | Charged only on the amount actually drawn against the sanctioned limit | Charged only on the amount overdrawn, for the period overdrawn |
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