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Both Cash Credit (CC) and Overdraft (OD) are short-term financing options provided by banks, but they serve different purposes and have distinct features.
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.
✔ 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.
An Overdraft allows an individual or business to withdraw more than the available balance in their current account, up to a pre-approved limit.
✔ 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.
| Basis | Cash Credit (CC) | Overdraft (OD) |
|---|---|---|
| Purpose | Designed to meet working capital needs (e.g., inventory, receivables, raw materials). | Used mainly for temporary liquidity or to meet short-term cash flow mismatches. |
| Eligibility | Granted mainly to businesses against stock-in-trade, debtors, or receivables. | Available to both individuals and businesses, often against fixed deposits, salary accounts, property, or investments. |
| Security / Collateral | Usually secured by hypothecation of current assets and may require additional collateral. | Can be secured or unsecured, depending on the relationship and security offered (FDs, property, etc.). |
| Limit Determination | Based on drawing power, calculated from stock and receivables statements submitted periodically. | Based on the value of collateral or creditworthiness of the borrower. |
| Interest Calculation | Interest is charged only on the amount utilized, not the full limit. | Same — interest is charged only on the utilized amount. |
| Repayment & Tenure | Continuous credit facility; limit reviewed annually based on turnover and financials. | Usually renewed yearly; repayment terms can vary based on security and bank policy. |
| Account Nature | Operates like a separate current account with credit and debit transactions. | Operates as an overdraft facility on an existing current/savings account. |
| Documentation & Monitoring | Requires regular submission of stock statements, debtor lists, and other financial data. | Minimal documentation (especially when secured by FDs or property). |
| Typical Users | Traders, manufacturers, wholesalers — businesses needing regular working capital. | Professionals, individuals, or businesses needing occasional short-term funds. |
To finance day-to-day business operations.
To manage inventory, raw material, and receivables.
Ideal for businesses with fluctuating working capital cycles.
To handle temporary cash shortages.
To pay urgent business expenses or bills before receivables are realized.
Useful for individuals for short-term liquidity (e.g., backed by FD or salary).
| 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) |
| If you are a… | Preferred Facility | Why? |
|---|---|---|
| Business with recurring working capital needs | Cash Credit (CC) | Continuous access to funds tied to inventory and receivables. |
| Individual or small business with occasional liquidity gaps | Overdraft (OD) | Easier approval, flexible usage, and lower documentation. |
Would you like help comparing current interest rates on CC and OD from different banks?
Secured Loan Cons:
| Particulars | Secured Loan | Unsecured Loan |
|---|---|---|
| Security/Collateral | Required | Not required |
| Risk for Lender | Low | High |
| Interest Rate | Lower (7–12%) | Higher (12–24%) |
| Loan Amount | Higher | Limited |
| Repayment Tenure | Longer (up to 20–30 years) | Shorter (1–5 years) |
| Processing Time | Longer (valuation, verification) | Faster (instant approvals possible) |
| Eligibility | Less strict | More strict (credit score important) |
| Recovery Method | Sell collateral | Legal action, civil suit, Section 138, etc. |
When to Choose What?
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