Bank Overdraft Meaning in Malayalam:
ഒവർഡ്രാഫ്റ്റ് എന്നത് ഒരു ബാങ്ക് അക്കൗണ്ടിൽ ലഭ്യമായതിലും കൂടുതൽ പണം ഉപയോഗിക്കാൻ നിങ്ങളെ അനുവദിക്കുന്ന ഒരു സൗകര്യമാണ്.
What is a Bank Overdraft?
An overdraft is a short-term loan facility offered by banks that allows you to spend more money than you have in your account. Basically, it gives you a temporary financial cushion, allowing you to cover unexpected expenses or make payments even when your account balance is low.
How Does It Work?
When you use your debit card, write a check, or make a payment exceeding your account balance, the bank will cover the difference. This is called an overdraft. The bank charges interest and fees on the amount overdrawn, and it's important to remember that this can quickly add up.
Overdraft vs. Credit Card
While both offer access to credit, they have key differences:
- Overdraft: Typically used for temporary, short-term needs, usually within a small amount.
- Credit Card: Provides a larger credit limit for longer-term purchases.
Importance of Understanding Bank Overdraft
Understanding the implications of an overdraft is crucial:
- High Interest Rates: Overdraft fees are significantly higher than credit card interest rates.
- Damage to Credit Score: Repeated overdraft use can negatively affect your credit score.
- Debt Accumulation: Failure to pay back the overdraft amount can lead to further debt accumulation.
Conclusion:
Bank overdraft can be a helpful tool in emergencies, but it's essential to use it responsibly. Be aware of the associated fees and potential impact on your credit score. Always prioritize repayment to avoid accruing excessive debt.