Sometimes, we are all caught just a bit short aren’t we? In the case of your bank account, if you need to withdraw more than what’s left in your bank account, it is known as an overdraft. In other words, it’s just a short-term loan that may be limited to a pre-approved amount by your bank. The bank may charge fees and/or interest on that loan amount.
For example…
Paul has a business credit card to purchase office supplies and other small everyday items he needs to run his tax accountancy practice employing three people. As he doesn’t expect to spend much on these items, he has a limit of five thousand dollars on his card. When one month, he had to replace his office printer in addition to purchasing the usual office supplies, he accidentally overdrafted his account by two hundred dollars. After he explained his mistake to the bank, they waived the fees on the overdraft owing to the fact that Paul had never made overdrafts before and always made repayments on time.
