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What is the difference between overdrafts and loans?

Rodney Fox

in Student Loans

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Ronald Miller on April 21, 2019

An overdraft is a specific type of loan associated with a checking account. A loan is a generic way to provide value immediately to the borrower in exchange for the borrower to pay the amount (plus interest) over time to the lender. An overdraft (also known as overdraft protection) is specific to the type of loan that is associated with a checking account. With overdraft protection, checks that have been written to be charged when there is not enough money in the account that are paid by the bank and the amount that was not covered by the account is represented in a loan. For example, if there was $ 27 in one account and a check was cashed for $750 for rent, $27 would be an overdraft loan charged per $723. Any additional checks may be accepted by the bank under the overdraft loans.


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