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Cash Credit vs. Overdraft: What's the Difference?

Edited by Harlon Moss || By Janet White || Published on November 7, 2023
Cash Credit is a short-term credit facility allowing businesses to withdraw money up to a specified limit, whereas Overdraft permits account holders to spend more than what's in their account up to a pre-approved limit.

Key Differences

Cash Credit and Overdraft are both credit facilities provided by financial institutions, yet they cater to different requirements and audiences. While Cash Credit is often a facility extended to businesses to meet their working capital needs, Overdraft is typically provided to individual account holders, allowing them the flexibility of withdrawing more than their account balance.
The primary utility of Cash Credit lies in its purpose. Businesses can tap into this facility to procure raw materials, manage inventory, or handle short-term financial obligations without disrupting their operations. Overdraft, on the other hand, serves as a financial cushion for account holders, ensuring that checks don't bounce or critical payments aren't missed even if their account runs dry.
Another distinction between Cash Credit and Overdraft is the security involved. Cash Credit usually requires collateral, like inventory or accounts receivables. In contrast, Overdrafts might not always require collateral, but banks might ask for some form of security or higher interest rates for higher limits.
Interest-wise, Cash Credit and Overdraft have unique structures. In the case of Cash Credit, interest is charged on the amount withdrawn, not the entire limit, and it's typically a short-term arrangement. Overdrafts also charge interest on the overdrawn amount, but the rates and terms might differ based on the individual's relationship with the bank.
In summary, while both Cash Credit and Overdraft offer financial leeway, they differ in purpose, audience, security requirements, and interest structures. Cash Credit primarily aids businesses in managing operational expenses, while Overdraft offers individuals flexibility with their account balances.

Comparison Chart


Meets business working capital needs.
Allows spending beyond account balance.

Target Audience

Individual account holders.


Usually requires collateral like inventory.
May or may not require collateral.

Interest Calculation

On the withdrawn amount.
On the overdrawn amount.

Typical Duration

Short-term arrangement.
Can be long-term based on the relationship with the bank.

Cash Credit and Overdraft Definitions

Cash Credit

A business loan against collateral to bridge working capital gaps.
The manufacturer secured a Cash Credit against its inventory.


A short-term borrowing option beyond available funds in an account.
To finalize the deal, the business utilized its Overdraft facility.

Cash Credit

A revolving loan allowing businesses to withdraw up to a set limit.
The firm tapped into its Cash Credit when sales were slow.


A facility allowing withdrawals beyond the account balance.
Jane used her Overdraft to cover the month-end expenses.

Cash Credit

An arrangement enabling companies to access funds beyond their cash on hand.
To meet the sudden demand, the retailer utilized its Cash Credit.


A pre-approved borrowing limit on a checking account.
Mark's Overdraft protection ensured his check didn't bounce.

Cash Credit

Short-term financing for companies to manage working capital.
Cash Credit helped the startup maintain a steady cash flow.


A financial cushion for account holders against unexpected expenses.
An unexpected medical bill led Sarah to use her Overdraft.

Cash Credit

A credit facility for businesses to fund operational costs.
The company used its Cash Credit limit to pay suppliers.


An arrangement with the bank to spend more than the existing balance.
The family's vacation expenses were covered with an Overdraft.


The act of overdrawing a bank account.


Abbr. OD or o/d The amount overdrawn.


The maximum amount of credit extended to a customer.


A current of air made to pass over the ignited fuel in a furnace.


A series of flues in a brick kiln designed to force air down from the top.


The air so forced.


(uncountable) The act of overdrawing a bank account.


(countable) The amount overdrawn.
I have an overdraft of £1234.


(countable) The maximum amount that may be overdrawn.
The bank have given me an overdraft of $2000.


The extraction of groundwater from an aquifer beyond the safe yield or equilibrium yield.


A series of flues in a furnace; the current of air forced through them.


(transitive) To extract groundwater from (an aquifer) beyond the safe yield or equilibrium yield.


The act of overdrawing; a draft in excess of the credit balance; also, the amount or sum overdrawn.


A draft in excess of the credit balance


What is Cash Credit?

Cash Credit is a short-term credit facility for businesses to manage their working capital needs.

Do I always need security for an Overdraft?

Not always, but banks might require security or charge higher rates for larger Overdrafts.

Is collateral needed for Cash Credit?

Yes, Cash Credit usually requires collateral like inventory or receivables.

Can I extend my Cash Credit limit?

Yes, with a valid reason and good credit history, you can request an increase in your Cash Credit limit.

What does Overdraft mean?

Overdraft is a facility that allows account holders to spend beyond their account balance up to a set limit.

Can individuals get an Overdraft?

Yes, Overdrafts are often extended to individual account holders.

How is interest charged on Cash Credit?

Interest on Cash Credit is charged on the amount that's withdrawn, not on the entire limit.

Who typically uses Cash Credit?

Businesses use Cash Credit to manage operational expenses and short-term financial gaps.

What happens if I exceed my Overdraft limit?

Exceeding the Overdraft limit might result in fees, higher interest rates, or declined transactions.

Are Overdrafts expensive?

Overdrafts can have higher interest rates than traditional loans, but it varies by bank and individual creditworthiness.

Why would a business choose Cash Credit over a loan?

Cash Credit offers flexibility to withdraw and repay as needed, making it suitable for fluctuating working capital needs.

Is Cash Credit renewable?

Yes, Cash Credit is a revolving facility and can be renewed based on terms set by the bank.

Can I convert my Overdraft to a term loan?

Some banks offer the option to convert Overdraft balances to term loans, but terms and conditions apply.

Do all checking accounts come with Overdraft facilities?

Not all, but many checking accounts offer Overdraft facilities based on the customer's creditworthiness and banking relationship.

How do banks determine Cash Credit limits?

Cash Credit limits are based on a business's operational needs, credit history, and the value of the collateral.

Can Overdraft affect my credit score?

Yes, excessive or unpaid Overdrafts can negatively impact your credit score.

Is Cash Credit a long-term financing option?

No, Cash Credit is a short-term facility designed for immediate business needs.

Are there any charges for not using the Overdraft?

Some banks may charge a nominal non-utilization fee, but it varies from one bank to another.

Can startups avail Cash Credit?

Yes, with proper documentation and collateral, startups can avail Cash Credit.

Is Overdraft protection the same as an Overdraft facility?

Overdraft protection is a service to prevent checks from bouncing, while an Overdraft facility is a credit limit on an account.
About Author
Written by
Janet White
Janet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Harlon Moss
Harlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.

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