An overdraft facility of up to 2500 rupees, which would further be enhanced by the bank to 5000 rupees over time was provided in Prime Minister launched Pradhan Mantri Jan Dhan Yojana. Consider the following statements regarding Overdraft:
1) An overdraft is an advance given by allowing a customer to overdraw his saving account upto an agreed limit.
2) The security for overdrafts is usually financial assets of the account holder such as shares, debentures, life insurance policies etc.
3) Overdraft is a temporary facility and the rate of interest charged on the amount of credit used is higher than that on cash credit.
Which of the above statement(s) is/ are incorrect?
Only 1 & 3
(Source: NCERT) Overdraft is a temporary facility and the rate of interest charged on the amount of credit used is lower than that on cash credit because the risk involved and service cost of such credit is less- it is easier to liquify financial assets than physical assets. An overdraft is an advance given by allowing a customer to overdraw his current account upto an agreed limit