Key takeaway
Both are revolving limits where you pay interest only on the amount used. Cash credit is given to businesses against stock and receivables, with drawing power linked to those assets. An overdraft is usually secured against property, fixed deposits or other assets, or offered on the strength of your banking history.
What is the difference between cash credit and overdraft?
Both are revolving limits where you pay interest only on the amount used. Cash credit is given to businesses against stock and receivables, with drawing power linked to those assets. An overdraft is usually secured against property, fixed deposits or other assets, or offered on the strength of your banking history.
Cash credit vs overdraft: quick comparison
| Feature | Cash credit (CC) | Overdraft (OD) |
|---|---|---|
| Who uses it | Traders, manufacturers holding stock | Businesses and individuals with security |
| Security | Hypothecation of stock & receivables | Property, FD, other assets |
| Drawing limit | Drawing power from stock/debtor statements | Fixed limit based on security value |
| Monitoring | Monthly stock statements, audits | Lighter monitoring |
| Interest | On amount used | On amount used |
Which should I choose?
Choose cash credit if your working capital is tied up in inventory and receivables. Choose an overdraft against property or FD if you need flexible funds without stock monitoring. Many Mumbai businesses use both.
Frequently asked questions
Drawing power is usually the value of eligible stock and receivables minus the margin set by the bank and minus creditors, as per your monthly stock statement. It can be lower than your sanctioned limit.
Sources & editorial policy
Content is researched from official sources such as the Reserve Bank of India (RBI), credit bureaus and lender websites, and reviewed periodically. Rates and charges change often – always confirm the latest terms with the lender.