OVERDRAFT CREDIT Meaning and
Definition
-
An overdraft credit refers to a financial arrangement provided by a bank or financial institution that allows an individual or business to withdraw more money than what is available in their account. It can be described as a type of short-term loan facility where the account holder is given the ability to spend or withdraw money up to an agreed limit beyond their available balance, effectively creating a negative balance in the account.
When an overdraft credit is utilized, the account holder incurs a debt that is subject to interest charges, typically calculated daily or monthly based on the outstanding balance. The purpose of an overdraft credit is to offer flexibility and temporary cash flow relief, allowing customers to cover unexpected expenses, manage irregular income, or address unforeseen financial obligations.
Overdraft credits may be either authorized or unauthorized. An authorized overdraft credit is an agreed-upon limit established between the account holder and the bank, respecting specific terms and conditions. In contrast, an unauthorized or unplanned overdraft occurs when an account holder withdraws or spends more than the available funds without prior consent, resulting in potential fees and penalties.
Overdraft credits can provide a buffer for individuals or businesses experiencing temporary financial constraints, offering greater liquidity and avoiding bounced payments. However, it is crucial to recognize that overutilizing this form of credit may lead to accumulated debt and higher interest charges, making it important to carefully manage the overdraft limit and related fees to prevent financial strain.
Common Misspellings for OVERDRAFT CREDIT
- iverdraft credit
- kverdraft credit
- lverdraft credit
- pverdraft credit
- 0verdraft credit
- 9verdraft credit
- ocerdraft credit
- oberdraft credit
- ogerdraft credit
- oferdraft credit
- ovwrdraft credit
- ovsrdraft credit
- ovdrdraft credit
- ovrrdraft credit
- ov4rdraft credit
- ov3rdraft credit
- oveedraft credit
- oveddraft credit
- ovefdraft credit
Etymology of OVERDRAFT CREDIT
The etymology of the term "overdraft credit" can be broken down as follows:
1. Overdraft: The word "overdraft" originated in the 19th century and is a combination of the prefix "over-" (meaning "beyond" or "exceeding") and the noun "draft" (meaning "a written order for payment of money"). The concept of overdraft refers to a financial arrangement where a bank allows a customer to withdraw or spend more money from their account than is currently available, resulting in a negative balance.
2. Credit: The term "credit" comes from the Latin word "creditum", which means "loan" or "trust". The word was adopted into the English language in the late 16th century and refers to the idea of allowing someone to obtain goods, services, or money with the understanding that payment will be made at a later date.
Infographic
Add the infographic to your website:
