Which statement best describes a bank overdraft compared with a loan?

Which statement best describes a bank overdraft compared with a loan?

• A. It is more secure due to fixed repayments.
• B. Repayment is required on fixed date.
• C. Interest is always lower than a loan.
• D. It is typically flexible and unsecured.

Answer: (D)

A bank overdraft is a flexible, revolving facility that lets you withdraw up to an agreed limit even if your balance is negative. You repay as cash flows permit; there isn’t a fixed repayment date, and interest is charged only on the amount overdrawn. It’s often unsecured, meaning no collateral is required up front. In contrast, a loan usually comes with a fixed repayment schedule over a set term and may be secured. Interest levels aren’t guaranteed to be lower with an overdraft. Because of the flexible usage, no fixed repayment date, and the common unsecured nature, the description that best fits is that an overdraft is typically flexible and unsecured.

A bank overdraft is a flexible, revolving facility that lets you withdraw up to an agreed limit even if your balance is negative. You repay as cash flows permit; there isn’t a fixed repayment date, and interest is charged only on the amount overdrawn. It’s often unsecured, meaning no collateral is required up front. In contrast, a loan usually comes with a fixed repayment schedule over a set term and may be secured. Interest levels aren’t guaranteed to be lower with an overdraft. Because of the flexible usage, no fixed repayment date, and the common unsecured nature, the description that best fits is that an overdraft is typically flexible and unsecured.