What Is an Overdraft?

Overdraft is a Chinese word, which means that the depositor withdraws the amount exceeding the deposit amount within a certain time and limit with the consent of the bank, the second refers to the expenditure exceeding the income, the third refers to the advance withdrawal (wage), and the fourth refers to the mental and physical exhaustion, Tolerable.

[tòu zh]

Overdraft: Originally means: payment or withdrawal beyond the limit. State adjective.

A form of bank lending: the bank allows its current depositors to be within the agreed limits,

Word : Overdraft

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Basic explanation

1. [; advance by overdraft]:

Overdrafts are a form of lending that banks allow their depositors to exceed the balance of their deposits within the limits agreed in advance. The broad concept of overdraft also includes fiscal overdraft, that is, after the fiscal deposit is used up, the financial department continues to issue checks within the prescribed limits, and the amount is advanced by the bank. Depositors shall pay interest on overdraft loans and have the obligation to repay at any time. There are three types of overdrafts: Where collateral is provided during an overdraft, it is called a mortgage overdraft; If collateral is not provided, it is called a credit overdraft; Overdrafts of mutual financing between banks are called interbank overdrafts.

Overdraft, as a form of credit, is one of the direct reasons for the expansion of credit in social and economic life and the chaos of money and financial markets. If the bank relies on various deposits and savings that it originally absorbed to overdraw, that is, it does not change the amount of credit funds and reduces the original loan to achieve overdraft, this overdraft has a material basis and will not cause too much to the money market. Great influence. In fact, overdrafts often cause banks

Tight credit funds have to rely on increasing currency issuance to achieve overdraft payments. At this time, overdraft credit may disrupt the original credit balance and cause credit inflation. In addition, overdraft credit may bring speculation. Because the borrower only needs to pay the principal and interest of the overdraft amount after the overdraft, when the interest rate of funds on the money market is higher than the overdraft rate, the borrower may use the overdraft amount to reinvest and obtain more profits. This not only caused chaos in the financial market, but also brought greater difficulties to the central bank and the state's control of the entire credit fund and financial market. Therefore, government agencies and central banks in many countries have adopted various measures, such as stipulating the scope of overdrafts, determining the maximum limit of overdrafts, and raising the interest rate of overdrafts, to strictly limit overdraft behavior.