DEFINITION of 'Overdraft'

An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money.


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If you have an overdraft account, your bank will cover checks which would otherwise bounce. As with any loan, you pay interest on the outstanding balance of an overdraft loan. Often the interest on the loan is lower than credit cards.

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