Definition & Meaning:

If you have no money left in your bank account, how can you get the bank to quickly lend you money to spend or take out? You could get a loan. But that would take you too long to get. You could use a credit card. But that can become expensive.

Another way is if the bank allows you to spend/take out more money in your bank account than you actually have in it. The ability to use more money than you have in a bank account is called an 'overdraft'.

An 'overdraft' is basically a way to instantly borrow money from your bank through your existing current/checking accounts. 'Overdrafts' always have a maximum limit of money you use (called an 'overdraft limit') and as long as you add money/funds to your bank account and don't go over the limit, they charge very low rates or no interest at all for using the 'overdraft' facility/service (but that depends on the bank).

'Overdraft' facilities are commonly used on both personal and business checking/current accounts.

A similar way that a business can borrow money from a bank without getting a loan is with a 'line of credit'.

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Related Vocabulary:

Line of Credit.

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