Bank overdraft is a type of financial instrument that is provided to some customers by the bank in the form of an extended credit facility, which comes into effect once the main balance of the account reaches zero.

In other words, bank overdraft is an unsecured form of credit that is mainly used for covering short term cash requirements.

Banks offer a credit limit to the bank customers based on their relationship with the bank. The bank levies separate interest and charges towards non-maintenance of account. The interest rate for the overdraft facility may vary from bank to bank.

Why Choose Over Draft Loan?

Over Draft loans are the loans which are obtained without the use of any property as collateral for the loan are also termed as signature loan. These loans are the low risk one for the borrowers and are solely depends on the creditworthiness of the borrower. An unsecured business loan requires no collateral and the borrower do not need to pledge their asset in order to avail the loan. The lender here accepts the risk of default and has no legal rights to seize your property if you fail to pay back the loan. However, a strong credit history is must to avail this type of loan.

Secured Vs Unsecured Over Draft

A Over Draft loan can be secured or unsecured. Secured small business loans are the kind of loans that are backed up by security, generally valuable assets and items your business owns. This type of lending is often termed as asset-backed lending since the lending amount here is backed by assets. These loans come with lower interest rates, higher borrowing limits and longer repayment tenures. Small unsecured loans are those loans which are not backed by any asset. They do not require any collateral and hence there’s a higher risk for the lender. This loan is normally backed up by a business’s trading position. These kinds of loans come with higher interest rates, smaller amount and are given for a shorter period of time. Since you are not risking any valuable business or personal asset, the lender cannot seize any property or income in case of default on the loan. These loans are comparatively cheaper than the credit cards.