An Overdraft (OD) is a financial facility that allows individuals or businesses to withdraw more money than they have in their bank account, up to a pre-approved limit. It is a flexible credit option offered by banks for managing short-term cash flow needs.

OD Limit: The bank sets a maximum overdraft limit based on factors such as income, credit history, and account type. You can withdraw funds as needed within this limit.

Interest Charges: Interest is charged only on the amount overdrawn, not the entire limit. The interest rate may vary based on the bank and the borrower’s profile.

Repayment Terms: OD accounts usually require the borrower to repay the overdrawn amount within a certain period. Some banks offer revolving overdraft facilities that can be renewed periodically.

Types of Overdrafts: There are two main types – secured (backed by collateral such as fixed deposits or property) and unsecured (based on creditworthiness). Secured ODs generally have lower interest rates.