Cash credit is a prearranged like loan, so through that a customer can withdraw money up to a maximum amount that has been sanctioned from the bank or NBFC. This max amount is called limit.
Cash credits are more commonly offered for businesses than individuals. They require that a security be offered up as collateral on the account in exchange for cash. This security can be a tangible asset, such as stock in hand, raw materials, or some other commodity. The credit limit extended on the cash credit account is normally a percentage of the value of the security offered.
Sometimes a financial institution offers a cash reserve account but calls it a cash credit instead. Cash reserves (sometimes called cash reserve credits) are unsecured lines of credit that act like overdraft protection. They typically offer higher overdraft limits and have smaller real interest costs on borrowed funds than overdrafts, since penalty fees are not triggered for using the account.
It is common for cash credits to be renewed annually for a business line. However, an account holder’s access to overdraft protection is reviewed annually and may or may not be re-approved by the bank.
Overdraft is additional facility given in a current account where the customer can withdraw amount more than the balance he has in his account.
There are several different types of overdrafts, but the two most common are standard overdrafts on individual demand deposit accounts and secured overdraft accounts that loan cash against various financial instruments.
A standard overdraft is the act of withdrawing more funds from an account than your balance would normally permit. Overdraft accounts, however, act more like a traditional loan. As with a cash credit account, money is lent by a financial institution but a wider range of collateral can be used to secure the credit.