What is overdraft in banking?
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There are 2 types of overdraft in Banking, so an overdraft is a lending product just like a Credit Card, Loan, or mortgage but with different terms & conditions of course
The types of overdraft I know of are Arranged & Unarranged overdraft.
The first one (Arranged overdraft) is when you apply for a certain limit of money that you can use on your current account for anything that you normally use your account for like paying bills or making purchases and transfers or ATM withdrawals, and the amount of money you are allowed depends on a few factors such as your Credit Score, income among others factors.
The second one (Unarranged Overdraft) which is only used if you are making certain transactions like Bill payments for example especially if it is a Direct Debit or a recurring card transaction (Subscriptions such as Netflix are called recurring card transactions), then your bank would cover you if you’re a bit short and how much it will cover also depends on similart factors to the arranged overdraft.
Hope this explains it 😂🤷
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