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Bank Overdraft an Overview (FIS)

A bank overdraft is a short-term loan that allows account holders to spend beyond their available balance, providing financial flexibility for unexpected expenses. Eligibility typically requires a good credit history, stable income, and an existing relationship with the bank. While it offers advantages like preventing bounced checks, it also comes with high interest rates and fees, necessitating responsible usage to avoid debt accumulation.

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Shruti Gala
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5 views11 pages

Bank Overdraft an Overview (FIS)

A bank overdraft is a short-term loan that allows account holders to spend beyond their available balance, providing financial flexibility for unexpected expenses. Eligibility typically requires a good credit history, stable income, and an existing relationship with the bank. While it offers advantages like preventing bounced checks, it also comes with high interest rates and fees, necessitating responsible usage to avoid debt accumulation.

Uploaded by

Shruti Gala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Bank Overdraft:

An Overview
A bank overdraft is a short-term loan facility that allows you to
spend more money than is available in your account. It offers
temporary financial flexibility in case of unexpected expenses or
insufficient funds.
by Praachi Shah
Functional Structure of Bank
Overdraft
Transaction Occurs
You attempt to make a payment exceeding your available balance.

Overdraft Activated
The bank approves the transaction and covers the difference.

Overdraft Limit
The amount you're allowed to overdraft is pre-defined by the bank.

Repayment
You are obligated to repay the overdraft amount, along with applicable
interest and fees.
Eligibility Criteria for Bank Overdraft
Credit History Income Stability Bank Relationship

A good credit history with a Proof of consistent income and a Existing banking relationships and
positive payment record is typically stable financial situation is usually a history of responsible financial
required. necessary. management can be beneficial.
Definition and Purpose of
Bank Overdraft
1 Financial Flexibility 2 Avoiding Bounced
Checks
An overdraft provides short-
term financial support by It prevents bounced checks or
allowing you to make declined transactions, which
payments even when your can have financial and social
account balance is negative. consequences.

3 Unexpected Expenses 4 Maintaining Credit Score


It helps cover unexpected Maintaining a positive
expenses such as medical overdraft history can
bills, car repairs, or contribute to a good credit
emergencies. score, which can be beneficial
for future loan applications.
Application Process for
Bank Overdraft
1 Application Submission
Complete and submit an overdraft application,
providing all necessary documents.

2 Credit Check
The bank reviews your credit history and assesses your
financial status.

3 Approval and Setup


If approved, your overdraft facility is set up with a
predetermined limit and terms.
Interest Rates and Fees
Associated with Bank
Overdraft
Interest Rate A percentage charged on the
overdraft balance, typically
higher than regular loan interest
rates.
Transaction Fee A fixed fee charged per overdraft
transaction, depending on the
bank's policy.

Monthly Fee A recurring monthly charge for


maintaining the overdraft facility,
sometimes waived under certain
conditions.
Repayment Terms and
Conditions
Automatic Repayment Minimum Repayment
The overdraft is usually Some banks require a
repaid automatically when minimum payment amount
your account balance is to be made towards the
positive. overdraft balance each
month.

Late Payment Penalties


Late payments can result in additional fees and negatively
impact your credit score.
Regulatory Oversight and Compliance

Consumer Protection Laws Transparency Requirements


Overdraft services are regulated by consumer protection Banks are required to disclose information about
laws to ensure fair practices and transparency. overdraft fees, interest rates, and terms and conditions.
Advantages and Disadvantages of Bank Ove
Advantages Disadvantages

• Financial Flexibility • High Interest Rates


• Avoid Bounced Checks • Additional Fees
• Temporary Relief • Debt Accumulation
Conclusion and Key
Takeaways
Bank overdraft is a useful tool for managing short-term cash flow,
but it's crucial to understand its terms and costs. Overdraft can be
helpful in emergencies, but it's essential to use it responsibly to
avoid accumulating unnecessary debt.
A Presentation
by;
Prachi Shah -
32
Perzeen
Engineer - 29
Shruti Gala -
49

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