Question

Distinguish between cheque and overdraft facility.

Answer 1

The difference between cheque and overdraft facility is as follow:

1. A cheque refers to a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued whereas overdraft refers to a continuous withdrawing facility in which the bank allows the customer to withdraw amount more than what he holds to his credit, but only up to a certain extent.
2. For availing a cheque facility, the person must have an account with the bank whereas to avail an overdraft facility, the borrower must have a current account with the bank.
3. A cheque does not require any collateral assurance to the bank whereas the Overdraft facility is given against the security of fixed assets.
   
4. A cheque can be written up to the extent of credit balance in the account whereas overdraft includes the withdrawal of amounts beyond the credit balance in the balance.