HELPS IN KEEPING GOOD TRACK RECORD
If a check was made on the basis of some amount to be received, and if it is delayed, the check does not bounce due to inadequacy of funds. Hence, overdraft facility allows for a better payment history.
It also ensures timely payments and avoidance of late payments penalties as payments can be made even if there is lack of sufficient balance in the account.
It requires less paperwork that would usually be required in long-term loan’s as overdraft facility is easy to avail.
Overdraft facility has the advantage of flexibility as one may take it at any time, for any amount (up to the limit allotted), and for even as less as one or two days.
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A bank overdraft is a temporary facility extended by a bank to corporate and other clients to withdraw funds from their account in excess of the balance. This facility is provided by the bank for a fee and interest is charged on the excess amount that is withdrawn for the length of the time. An overdraft facility allows the facility holder to withdraw money from the account despite having no balance. There is usually a limit on the amount that can be overdrawn from the account. The business overdraft limit is usually set by the bank basis the amount of working capital and creditworthiness of the facility taker.
BENEFIT OF INTEREST COST
The interest is calculated only on the amount of funds used. This allows for greater savings in the interest cost compared to a normal loan taken at a fixed interest rate. While in other loans, interest is paid even if the money remains unused. In this case, the charging of interest starts with the payments you make, but it stops instantly when there are receipts.
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