Overdraft

An overdraft is when one has overdrawn at the situate. marrow there is a negative balance due to spending more than than the money that is in the bank. Bank overdraft is a temporary initiation whereby a bank customer can withdraw more money than what is genuinely available in his/her account. Obviously the money doesnt be pertinacious to them save belongs to the bank, so this money will indispensability to be paid back. Normally, stipendiary back is automatically done when money goes into the persons account.However, a small heart of interest based on the amount overdrawn and the distance of time overdrawn is charged, a bank overdraft is also a graphic symbol of contribute which can be used if required to provide additional running(a) capital for a short period of time when there is a coin deficit. An overdraft is particularly useful when one has regular sales and purchases advent out of the account which could result in bad cash flowing situations. The best thing to do is to avoid overdrafts unblemishedly.Do this by creating a budget, guardianship an extra cash cushion in your account, managing your checkbook and checking your balance in front making a purchase or writing a cheque. The prefer of a bank overdraft is that it is there when you need. It allows you to make essential payments whilst chasing up for your make payments, and helps to maintain cash flow. You only need to borrow what you need at the time. Overdrafts are also easy and quick to arrange, providing a good cash flow backup with the minimum of fuss.The disadvantages of a bank overdrafts is that it carries an interest and fees which is lots at much higher rates than loans. This makes them very expensive for long term borrowing. You also face large charges if you go over the concur overdraft limit. Unless specified in the terms and conditions, the bank can recall the entire overdraft at any(prenominal) time. This may happen if you fail to make other(a) payments, or if you have broken terms and conditions though sometimes the banks just change their policies.Overdrafts may need to be secured against your business assets, which put them at risk if you cannot meet repayments. Unlikeloansyou can only get an overdraft from the bank where you maintain your current account. In order to get an overdraft elsewhere you need to transfer yourbusiness bank account. Situation Mr. T applied for an overdraft eagerness with collateral. He mortgaged his house in order to get an overdraft facility of RM200,000 with an interest of BLR-2. 2% with HSBC Bank (BLR-Base lending rate).RM200,000 is deposited into his account upon the completion of protection documentation. Interest is only payable for the amount of money practiced and he is given a tenor of 10 years to repay back. If he does not utilize the RM 200,000, he need not pay any interest to the bank for that month. The bank only calculates interest for the utilized amount only on a daily basis. However, if he do esnt utilize any money, the bank may impose a service charge. This type of overdraft facility is best for businessman.