Overdraft loan (sometimes just Line of Credit) is a short-term operational loan provided by the bank. It is a loan to the current bank account of the client, which allows repeatedly overdrawn funds up to the amount authorized (agreed) loan line. The loan is automatically drawn up to a specified amount (credit limit) from the account, when the expenditure exceeds the balance (there is a “negative balance”). It is a loan provided for no purpose (non-specific).
Overdraft loan is offered in two versions:
- Secured loan - with this option, securing is necessary (for example, it is guaranteed by term deposit in the same or a higher amount as agreed credit limit)
- Unsecured loan - without securing
Overdraft loan in practice
Overdraft is used by companies and individuals. It offers quick financial reserve in case of unexpected expenses or accidental income delays. The advantage is the fast process of credit granting.