What is the Difference between Cash Credit and Overdraft?

Nov 13, 2020

What is the Difference between Cash Credit and Overdraft?

The financial market brings several short-term funding solutions for both business purposes as well as personal use. As India inches closer to becoming the fourth-largest private wealth market come 2028, as projected by India Brand Equity Foundation, the availability of short-term financing options only enable one to utilise liquidity as and when required and pay for it with ease. Two such common short-term funding options include cash credit and overdraft facilities.

Although both are popular financing options for a smaller duration, the typical points of difference between overdraft and cash credit make them suitable for specific circumstances. Also, the borrower profiles for the two differ significantly.

But, before you distinguish between cash credit and overdraft facility, it is essential to understand the two funding options closely.

So, check out the meaning of the two forms of financing below!

Cash Credit and Overdraft Facility – A Detailed Look

Cash credit is a typical short-term funding option, which various financial institutions offer to businesses for fulfilling their working capital requirements. Business owners can avail financing as cash credit against their inventories hypothecated to the lender.

As for an overdraft facility, it is a conventional form of financing available in two forms.

  • Banks can offer an overdraft facility to businesses, whereby the account holder can withdraw funds up to a specific limit even though the account balance remains nil. Such a facility is, however, limited to business owners holding a current account.
  • Various lending institutions also provide overdraft facilities on their loan products, with similar functions as a conventional overdraft facility. Nevertheless, such facilities are available to all borrowers, irrespective of whether they are salaried individuals or business owners. The utility of these two forms of financing thus varies.

Now that you know what these two short-term funding options entail let’s take a look at the various points of difference between overdraft and cash credit.

How does an Overdraft Facility Differ from Cash Credit?

  • Purpose of financing

The primary point of difference between overdraft and cash credit is their purpose. A cash credit option is limited to funding the working capital requirements of a business. Conversely, the use of funds obtained through overdraft is not limited. You can thus utilise it to finance both personal and professional needs.

  • Loan amount availability

As a cash credit is available against the hypothecation of inventory, the loan amount you can avail entirely depends on the volume of stock maintained by the business at the time of availing funds.

In the case of an overdraft facility, the amount you can raise from a conventional bank overdraft depends on your credit history and past relationship with the bank. It thus establishes the unique point of difference between bank overdraft and cash credit.

In the case of overdraft facilities provided against any form of an asset as collateral, the amount of funds you can avail depends primarily on the value of asset provided as security.

  • Withdrawal facilities

Another important difference between overdraft and cash credit is the withdrawal facility provided for the two. While a cash credit option allows you to receive funds at a go as per the amount approved, an overdraft facility enables multiple withdrawals from the total funds available.

  • Interest charge

It is another crucial aspect to distinguish between cash credit and overdraft facility. Interest calculation on cash credit as a funding option is done on the entire amount extended by the lender. Contrarily, interest accrual on an overdraft facility occurs only on the amount withdrawn by you, and not on the total amount sanctioned.

While these points of difference between cash credit and overdraft facility clearly establish the latter as a financing option with increased utility, an overdraft solution from Rupeek Fintech Private Limited only proceeds to broaden the benefits.

The lender brings Rupeek Quick, an overdraft facility extending a line of credit suitable to meet diverse funding needs, as and when needed.

Following are other pertinent details of this overdraft facility that make it a superior funding option to fulfil your financial needs with ease.

Rupeek Quick – Know how it Benefits a Borrower

An innovative overdraft facility extended by RBI-approved gold loan provider Rupeek Fintech Private Limited, Rupeek Quick facilitates last-minute borrowing to allow individuals to fund their urgent financing needs conveniently.

Here are some of the typical benefits of this facility that borrowers can enjoy when in need of urgent financial assistance.

  • Instant fund availability through online procedure

The lender makes instant financing possible with the application process made completely online. Once you have applied, a loan manager visits your house to provide approval on the basis of gold valuation.

  • An extended line of credit

Rupeek Quick brings an extended line of credit at your disposal against the gold ornaments pledged. From the approved loan amount, you can make withdrawals in instalments as per your funding needs.

An existing line of credit at disposal thus means you do not have to undertake any separate application procedure and access funds instantly.

  • Low interest rates

Τhe lender extends their typical low interest rate feature to Rupeek Quick instant loans as well. You can thus utilise this flexible funding option at one of the lowest interest rates.

  • Interest charged only on the amount withdrawn

Further, as a typical overdraft facility, this particular instant loan charges interest only on the amount you utilise from the total loan amount. It thus keeps the funding affordable too.

Now, take a look at the application process you need to follow to avail this overdraft facility.

How to Apply for this Overdraft Facility?

The gold loan provider Rupeek Fintech Private Limited has made the entire process of availing loans online, thus making these funding options more accessible than ever. So, you do not need to venture out of your house to avail the loan. Proceed with the following steps to apply -

Step 1 – Apply for this instant loan via the lender’s website or their dedicated app downloaded from the Google Playstore.

Step 2 – A loan manager visits your house to complete gold valuation and KYC registration only with documents like identity and address proof.

Step 3 – Once complete, a suitable loan amount is approved instantly.

From this approved loan amount, you can now withdraw funds as and when required.With these many benefits of Rupeek Quick, it clearly scores better when comparing the points of difference between overdraft and cash credit. With minimum eligibility and document requirement, any individual owning gold ornaments can avail the advance conveniently.

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