Loan vs. Overdraft

By Jaxson

Main Difference

The main difference between Loan and Overdraft is that the Loan is a transfer of money that must be repaid and Overdraft is a occurs when money is withdrawn from a bank account and the available balance goes below zero

  • Loan

    In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt provided by an organization or individual to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.

    In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.

    The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.

    Acting as a provider of loans is one of the principal tasks for financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

  • Overdraft

    An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be “overdrawn”. If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

  • Loan (noun)

    A sum of money or other valuables or consideration that an individual, group or other legal entity borrows from another individual, group or legal entity (the latter often being a financial institution) with the condition that it be returned or repaid at a later date (sometimes with interest).

    “He got a loan of five thousand pounds.”

    “All loans from the library, whether books or audio material, must be returned within two weeks.”

  • Loan (noun)

    The contract and array of legal or ethical obligations surrounding a loan.

    “He made a payment on his loan.”

  • Loan (noun)

    The permission to borrow any item.

    “Thank you for the loan of your lawn mower.”

  • Loan (noun)

    A lonnen.

  • Loan (verb)

    To lend (something) to (someone).

  • Overdraft (noun)

    The act of overdrawing a bank account.

  • Overdraft (noun)

    The amount overdrawn.

    “I have an overdraft of £1234.”

  • Overdraft (noun)

    The maximum amount that may be overdrawn.

    “The bank have given me an overdraft of $2000.”

  • Overdraft (noun)

    The extraction of groundwater from an aquifer beyond the safe yield or equilibrium yield.

  • Overdraft (noun)

    A series of flues in a furnace; the current of air forced through them.

  • Overdraft (verb)

    To extract groundwater from (an aquifer) beyond the safe yield or equilibrium yield.


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