Exercises · Q10
Q.Distinguish between cash credit and overdraft.
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Start your 14-day free trial to unlock the full solution →| Basis | Cash credit | Overdraft |
|---|---|---|
| Nature | A distinct credit account/limit sanctioned by the bank | A facility attached to an existing current account |
| Security | Usually granted against tangible security such as stock or receivables | May be granted against security or, for trusted customers, unsecured |
| Purpose | Meant for ongoing working-capital needs of a business | Meant for a short-term, temporary cash shortfall |
| Interest | Charged only on the amount actually drawn against the sanctioned limit | Charged only on the amount overdrawn, usually for a short period |
| Duration | Typically a running facility renewed periodically | Typically short-term and expected to be cleared quickly |
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