Cash Credit vs Overdraft: Key Differences & Uses

Cash Credit vs Overdraft: Key Differences & Uses

Both Cash Credit (CC) and Overdraft (OD) are short-term financing options provided by banks, but they serve different purposes and have distinct features.

What is Cash Credit?

Cash Credit is a short-term loan offered to businesses to meet their working capital needs. It is typically secured against stocks, receivables, or fixed assets.

Features of Cash Credit:

✔ Short-Term Loan – Must be repaid within 12 months.
✔ Predefined Limit – Based on the business’s financial strength.
✔ Security Required – Usually backed by inventory or assets.
✔ Lower Interest Rate – Compared to Overdraft facilities.
✔ For Business Use Only – Not available for personal financial needs.

What is an Overdraft?

An Overdraft allows an individual or business to withdraw more than the available balance in their current account, up to a pre-approved limit.

Features of Overdraft:

✔ Flexible Withdrawal – Transactions continue even with insufficient funds.
✔ Higher Interest Rate – Compared to Cash Credit.
✔ No Collateral Required – Based on creditworthiness.
✔ Personal & Business Use – Covers unexpected expenses.
✔ Minimal Paperwork – Can be availed on an existing account.

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Key Differences Between Cash Credit and Overdraft

Feature	Cash Credit (CC)	Overdraft (OD)
Purpose	Business needs (working capital)	Personal & business financial shortfalls
Interest Rate	Lower	Higher
Loan Tenure	Usually 1 year	Flexible (monthly, quarterly, yearly)
Security Required	Yes (inventory, fixed assets)	No (credit score-based)
New Account Needed?	Yes	No (can be used on existing account)

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Bottom Line

• Cash Credit is ideal for businesses needing regular working capital.
• Overdraft is useful for individuals or businesses facing temporary cash shortages.
• Always compare interest rates, fees, and terms before choosing the best option.

Would you like help comparing current interest rates on CC and OD from different banks?