OVERDRAFT ARRANGEMENT Meaning and
Definition
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An overdraft arrangement refers to a financial facility provided by a bank or financial institution, that allows an account holder to withdraw more money from their account than they actually have. It is a pre-approved extension of credit provided by the bank, usually linked to a current account or a checking account. This arrangement allows the account holder to access additional funds temporarily, in situations where their account balance falls below zero.
Typically, an overdraft arrangement comes with a limit or a predetermined amount which the account holder can access as an overdraft. This limit is usually based on factors such as the account holder's credit history, income, and banking relationship. The overdraft can be used to cover unexpected expenses or cash flow shortages, providing a cushion to the account holder until they are able to replenish their funds.
Overdraft arrangements are subject to certain terms and conditions, including an interest rate that is charged on the amount used, often on a daily or monthly basis. The interest is typically calculated based on the outstanding balance of the overdraft. Some banks may also charge additional fees or penalties for exceeding the agreed overdraft limit or for late payments.
Overall, an overdraft arrangement functions as a flexible financial tool that helps individuals or businesses manage their cash flow and bridge temporary funding gaps, providing them with immediate access to extra funds when needed.
Common Misspellings for OVERDRAFT ARRANGEMENT
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Etymology of OVERDRAFT ARRANGEMENT
The word "overdraft" has its origins in the late 18th century, derived from the verb "overdraw". "Overdraw" originally referred to the act of drawing or pulling something over or across a particular line or boundary. Over time, it acquired the meaning of exceeding the limit or boundary set for drawing or withdrawing money from a bank account.
The word "arrangement" originates from the French word "arrangement", which entered the English language in the 17th century. It refers to the act of organizing or setting something up in a particular manner, often in terms of an agreement or plan.
Therefore, the term "overdraft arrangement" combines the concept of exceeding the limit or boundary of withdrawing money with the act of organizing or setting up an agreement or plan to allow for such borrowing from a bank account.
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