Working capital · Comparison
Cash credit vs overdraft — which facility should your business run on?
Both fund working capital and both charge interest only on what you use. The difference is what secures them, how the limit is calculated, and how much monthly reporting the bank expects.
Quick answer
Choose cash credit if your money is locked in stock and receivables — the limit grows as your inventory does. Choose an overdraft if you have property or deposits to pledge, or you run a service business with no inventory and want a fixed limit with lighter monthly reporting.
Side by side
| Parameter | Cash Credit (CC) | Overdraft (OD) |
|---|---|---|
| Primary security | Stock and book debts (hypothecated) | Property, FD, or the current account itself |
| Limit calculation | Drawing power from monthly stock & debtor statements | Fixed limit against collateral value or banking turnover |
| Typical rate | 9% – 16% p.a. on utilised amount | 10% – 16% p.a. on utilised amount |
| Best suited to | Traders, manufacturers, distributors with inventory cycles | Service businesses, professionals, asset-rich borrowers |
| Compliance load | Monthly stock statement, annual renewal, stock audit above limits | Annual renewal, lighter reporting |
| Limit movement | Drawing power moves with stock and receivables | Stays fixed until review |
| Ideal utilisation | 60–80% consistently | 60–80% consistently |
Rates and terms are indicative market ranges across our 48+ empanelled lenders; the sanctioning bank sets final terms.
Frequently asked questions
What is the main difference between cash credit and overdraft?
Cash credit is a working capital limit secured primarily by stock and book debts, where the usable amount (drawing power) changes every month with your inventory and receivables. An overdraft is a fixed limit on a current account, usually backed by property, a fixed deposit or your banking turnover, and it does not move with stock.
Which is cheaper, CC or OD?
Cash credit is often 0.5–1% cheaper because stock and debtors are considered self-liquidating security, but a property-backed overdraft can price lower than an unsecured or turnover-based CC. Compare the effective cost including processing, renewal and stock-audit charges — not just the headline rate.
Can I have both a cash credit and an overdraft?
Yes, provided total exposure fits your assessed working capital gap and existing lenders permit it. Multiple-banking or consortium disclosure norms apply above certain limits.
Is interest charged on the full limit?
No. In both facilities interest applies only to the amount actually utilised, computed on daily closing balances. Non-utilisation of the limit can, however, attract a commitment charge or a downgrade at renewal.
What happens at renewal?
Both facilities are annual. The bank reviews financials, conduct and utilisation. Late stock statements, cheque returns, and consistently low utilisation are the three most common reasons a limit gets reduced.