An overdraft facility allows you to withdraw money from your bank account even if the account balance is zero
. It is a credit service that provides a pre-approved credit line beyond your account balance, acting as a safety net during unforeseen financial situations
. Key aspects of overdraft facilities:
- How it works An overdraft is an extension of credit from a bank that is granted when an account reaches zero
. It allows the account holder to continue withdrawing money even when the account has insufficient funds to cover the withdrawal
- Usage Overdrafts can be triggered by writing a check that exceeds your balance, using a debit card for a purchase that puts you in the negative, or automatic payments exceeding your account balance
- Fees and interest Banks charge interest only on the amount drawn, not the total sanctioned limit
. Overdrafts may also incur additional fees or penalties
- Repayment There is no set monthly repayment schedule, and you can repay the amount in varying amounts whenever funds are available
- Overdraft limit Overdraft limits differ for each borrower and depend on the customer’s relationship with the bank
. The overdraft limit is extended to the customer based on their account value, credit score, and repayment history
