Term Financial products
Overdraft
السحب على المكشوف as-sahb ʿalā al-makshūf اقرأها بالعربية ←
A credit arrangement that lets you withdraw more than your account balance, with interest charged on the amount overdrawn.
What does it mean?
An overdraft is usually an agreement between you and your bank that allows your current account to go negative up to a set limit. When you withdraw more than you have, the bank covers the shortfall temporarily, and you pay interest on that extra amount for as long as it remains outstanding.
The bank sets a maximum overdraft limit based on your income and financial obligations. Interest is calculated daily on the negative balance and added to your account monthly or according to the contract terms.
Why should I care?
An overdraft is the only common form of borrowing with no repayment schedule. A loan ends on a date printed in the contract; an installment plan ends after the fourth payment. An overdraft ends whenever you happen to be in credit again, which for a lot of people is never — the salary lands, the balance goes briefly positive, and the month pulls it back under before the next salary arrives.
That is what makes the daily interest expensive. Priced by the day and owed indefinitely, a facility meant to cover four days a month quietly becomes a permanent loan at the highest rate your bank charges you. The test is simple: open the last six statements and count the days the balance was negative. If it is most of them, you are not using a short-term facility, you are carrying a loan you never applied for and paying overdraft rates on it.
It is also the cheapest credit to arrange and the easiest to stop noticing, which is nearly the same sentence twice. Nothing arrives to tell you the balance went under, and no payment ever falls due.
What should I know?
- An overdraft differs from a TermPersonal loanالقرض الشخصيMoney you borrow from a bank or lender and repay in fixed monthly installments with interest, with no restriction on how you use it.Open the term: a loan is disbursed as a lump sum, while an overdraft works as a credit line you draw from as needed.
- Interest on overdrafts is higher than on regular loans, because the bank does not know in advance how much you will draw or for how long.
- Interest accrues on the daily balance, so covering the account for part of the month genuinely reduces the charge. There is no minimum period.
- Salary advances and buy-now-pay-later schemes are cheaper in most cases, but they are limited to specific amounts and conditions.
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