What is OVERDRAFT?

1. Loan arrangement that enables individuals or businesses to borrow up to an agreed limit without prior approval. Overdrafts can be paid off at any time and interest is charged on the daily debit balance. Overdrafts can be ?called? by a bank, usually in response to a fall in the borrower?s credit rating, the suspicion that the borrower may default on the overdraft loan, or when the borrower has not paid off an overdraft loan and it has become a ?hardcore? debt. 2. The debit balance of a bank account where more funds have been withdrawn than have been deposited.

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