Features of bank overdraft

1. Bank overdraft

Some businesses may need to withdraw money from their accounts when there are insufficient funds in their accounts. They may request their banks to allow them to overdraw from their accounts for a short period. Interest will be charged on the amount overdrawn. This is an informal way of borrowing money from the bank.

Features of bank overdraft

• It is suitable way for short term finance.
• It is not suitable for large amount of finance.
• Comparing to bank loan, the rate of interest is high for overdraft, and in long run, it will be very expensive.

Advantages of Bank overdraft

1.    Company faces an immediate shortage of cash and bank overdraft is the best suited short term loan.

2.    It is very easy to obtain as there are least formalities to be followed.

3.    Bank overdraft is a suitable source of finance when we do not know the exact amount required and for how long it is required.

4.    Interest will be charged only for the amount overdrawn and for the period for which it is overdrawn.

Disadvantages of bank overdraft

1. It is not suitable for large amount of finance.
2. Comparing to bank loan, the rate of interest is high for overdraft, and in long run, it will be very expensive.