What is the difference between overdraft and cash credit?

Question

What is the difference between overdraft and cash credit?

Answer 1

There is small change in Narkhed's answer, that is Cash credit is a loan  given against the security and also against the value of goods (Raw material, Finished goods or Stock in hand etc)

Answer 2

An overdraft occurs when withdrawals from a bank account exceed the available balance which gives the account a negative balance - a person can be said to have gone "overdrawn".

If there is a prior agreement with the account provider for an overdraft protection plan, and the amount overdrawn is within this authorised overdraft, then interest is normally charged at the agreed rate. If the balance exceeds the agreed terms, then fees may be charged and higher interest rate might apply.

Cash Credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount. This type of financing is similar to a line of credit.

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