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Key Differences

Know the Differences & Comparisons

Difference Between Cash Credit (CC) and Overdraft (OD)

Last updated on July 26, 2018 by Surbhi S

cash credit vs overdraftBusiness organizations need funds in order to meet their monetary requirement. Funding provided by banks for this purpose can either be long term or short term. Nowadays individuals/entities choose short term loan facility, in the form of cash credit and overdraft. Cash Credit is a type of facility provided by the bank or financial institution in which, a company can withdraw an amount more than what he holds to his credit against the security of stock.

On the contrary, Bank Overdraft is another facility, in which the bank permits the customer to debit his current account below zero but only up to a specified limit. So, there is always a question, which of the two facilities should be chosen over the other. And for this, one must know the difference between cash credit and overdraft, so take a look at the article and understand the term clearly.

Content: Cash Credit Vs Overdraft

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Similarities
  5. Conclusion

Comparison Chart

Basis for ComparisonCash CreditOverdraft
MeaningCash credit is a type of short term loan provided to companies to fulfill their working capital requirement.Overdraft is a facility given by the bank to companies, to withdraw money "more" than the balance available in their respective accounts.
SecurityPledge or hypothecation of inventory.Assets like financial instrument and property.
AccountCash Credit AccountCurrent Account

Definition of Cash Credit (CC)

Cash Credit is a type of short-term loan facility in which the withdrawal of money by the company is not restricted to the amount the borrower holds in his cash credit account but up to a predefined limit.

The cash credit account functions like a current account with cheque book facility. The facility is provided to pledge or hypothecation of stock i.e. raw materials, work in progress, finished goods, etc. or on the guarantee of book debts (debtors) or other collateral security as per banking company norms. The purpose of taking cash credit is to fulfil working capital requirement of the firm. The cash credit limit is supposed to be equal to the working capital requirement of the company less the margin funded by the company itself.

The drawing limit is specified by the bank or financial institution as well as it can vary from bank to bank and borrower to borrower. The bank charges interest on the amount utilised not on the limit sanctioned. The bank has the right to demand money lent at any time.

Definition of Overdraft (OD)

Overdraft means the act of overdrawing money from the bank account. Bank Overdraft is a facility provided by the bank to its customers withdraw money more than the amount he holds in his account.

The overdraft limit sanctioned is predefined by the bank depending upon the securities pledged or repayment capacity of the Account holder. The drawing limit is specified by the bank, or financial institution may vary from bank to bank and borrower to borrower. Interest is charged on the amount utilised not on the limit sanctioned. The amount withdrawn above the specified limit will be subject to additional charges.

The overdraft are repayable on demand i.e. the bank has the right to call the money lent to the customer at short notice. Cheque book is provided to the account holder to operate these account.

When the overdraft facility is provided without any security to meet urgent financial needs, it is known as Clean Overdraft. However, when it is provided against the security of assets like land & building, shares, debentures, etc. it is known as Secured Overdraft.

Key Differences Between Cash Credit (CC) and Overdraft (OD)

The following points are noteworthy so far as the difference between cash credit and bank overdraft is concerned:

  1. The withdrawing facility provided by the bank in which the person can withdraw amount more than what he holds to his credit, against the hypothecation of stock or any other collateral security is known as a cash credit. Overdraft is another withdrawing facility in which the bank allows the customer to withdraw amount more than more than what he holds to his credit, but only up to a certain extent is known as Overdraft.
  2. The Cash Credit is divided into two categories, i.e. Key Cash Credit and Open Cash Credit. The Overdraft is divided into two types, i.e. secured overdraft and clean overdraft.
  3. For availing cash credit facility, the borrower must have a cash credit account with the bank or financial institution. Conversely, Overdraft facility can be availed by the borrower, if he has a current account with the bank.
  4. Cash credit facility is given against the pledge or hypothecation of inventory or other current assets or collateral security. Overdraft facility is given against the security of fixed assets (if securitised).

Similarities

  • Payable on demand
  • Money can be withdrawn more, than the amount available in the account.
  • Security
  • Limit
  • Line of credit

Conclusion

For fulfilling the working capital requirement of the company at the time of ‘need’, the banks provides many facilities. These facilities include cash credit, overdraft, bill discounting and working capital loan, etc. Cash Credit and Overdraft are the popular ones; they are very similar in many aspects. The difference between cash credit and overdraft is quite subtle. But, overdraft is one of the oldest concepts as compared to the cash credit.

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Comments

  1. Judith says

    December 3, 2015 at 3:45 am

    Love it …thank you

    Reply
  2. Banerjee says

    January 22, 2017 at 1:06 pm

    Is net banking possible in Cash Credit account in Indian Banks? Can this account be transferred to a different branch?

    Reply
    • Surbhi S says

      January 23, 2017 at 10:02 am

      Yes, net banking is possible in cash credit account in Indian banks. Moreover, CC account can be transferred to another branch, by making an application to the account maintaining branch and certain formalities should be fulfilled, and it can only be transferred at bank’s discretion

      Reply
  3. hari says

    February 13, 2017 at 3:36 pm

    super brief details and catch point easily

    Reply
  4. VISHNU JAISWAL says

    May 26, 2018 at 12:23 pm

    EASY TO UNDERSTAND AND VERY INFORMATIVE

    Reply
  5. Vishal kumar says

    July 26, 2018 at 9:12 pm

    After how many days you have to pay outstanding amount to lender in cash credit

    Reply
  6. Dilip kumar sachdeva says

    September 19, 2018 at 12:00 am

    Thanks for good knowledge provided by you. How i can contact you or how i can clear doubts from you regarding banking knowedge ?

    Reply
  7. Ashish Reddy says

    October 25, 2018 at 3:06 pm

    Thankxx for the information….

    Reply
  8. Debojyoti Chakraborty says

    December 10, 2018 at 6:10 pm

    I want to know that if I want to take a cash credit of Rs.30 lakh within how many days I have to repay to the bank for e.g. SBI? What would be the maximum time bank would give to repay the loan? Is it anyway 15 to 20 yrs? Kindly let me know with all details.

    Reply
  9. Narender Kumar says

    December 24, 2018 at 4:31 pm

    super brief details and easily catch point

    thanks

    Reply
  10. pratiksha says

    May 31, 2019 at 4:42 pm

    Thank you for the information

    Reply
  11. Sunil patel says

    October 5, 2019 at 5:51 pm

    Very useful.

    Reply

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