CC and OD Account Difference: Understanding Cash Credit vs. Overdraft

Introduction

When businesses and individuals seek short-term financing solutions, two common options offered by banks and financial institutions in India are Cash Credit (CC) accounts and Overdraft (OD) accounts. Both facilities provide working capital support and liquidity management, but they are often confused due to their similar features. Understanding the CC and OD account difference is essential for choosing the right credit facility for your financial needs.

This blog explores in detail the meaning, features, eligibility, interest rates, advantages, disadvantages, and key differences between Cash Credit and Overdraft accounts. By the end, you will have a clear picture of which facility suits your requirements.

What is a Cash Credit (CC) Account?

A Cash Credit (CC) account is a short-term loan facility provided to businesses against their current assets such as stock-in-trade, receivables, or inventory. It is primarily designed to meet the working capital requirements of a company.

Key Features of Cash Credit Account:

• Loan Type: Secured loan against current assets (inventory, receivables, etc.)
• Usage: Designed for business working capital needs.
• Limit: A credit limit is sanctioned by the bank, generally for 12 months, reviewed annually.
• Interest: Charged only on the utilized amount, not the sanctioned limit.
• Security: Hypothecation of stock, receivables, or property (sometimes collateral is also taken).
• Renewable: Facility must be renewed yearly by the lender.

For a detailed guide, check out our blog on Cash Credit Loan: Interest & Eligibility.

What is an Overdraft (OD) Account?

An Overdraft (OD) account is a facility that allows individuals and businesses to withdraw money from their current or savings account, even if the account balance goes below zero, up to a pre-approved limit.

Key Features of Overdraft Account:

• Loan Type: Can be secured (against FD, property, shares) or unsecured.
• Usage: Available to both individuals and businesses for meeting liquidity needs.
• Limit: Bank sets a maximum overdraft limit based on customer profile and security.
• Interest: Charged only on the overdrawn amount, on a daily reducing balance.
• Flexibility: Withdraw, deposit, and repay as per convenience.
• Duration: Typically reviewed annually.

Learn more in our detailed blog on Overdraft Facility: Features & Process to Apply.

CC Account Meaning vs. OD Account Meaning

• CC Account Meaning: A revolving credit facility given mainly to businesses against assets, specifically for working capital needs.
• OD Account Meaning: A facility that allows account holders to withdraw beyond their balance, available for both personal and business use.

Eligibility Criteria for CC and OD Accounts

Cash Credit Account Eligibility:

• Applicant must be a resident Indian.
• Age: 21-65 years.
• Must be a business owner, professional, or self-employed.
• Should maintain proper financial records (ITR, GST returns, audited financials).
• Must provide collateral/security (stock, receivables, property).

Overdraft Account Eligibility:

• Resident Indian (individual or business).
• Age: 21-65 years.
• For secured OD: Collateral such as Fixed Deposits, property, LIC policy, or mutual funds required.
• For unsecured OD: Based on credit score, income profile, and relationship with the bank.

Documents Required for CC and OD Accounts

Common KYC Documents:

• Aadhaar Card, PAN Card, Voter ID, Passport, Driver’s License.
• Utility bills (electricity, gas, water).

Business Proofs (for CC & business OD):

• GST registration certificate.
• Trade License.
• Partnership Deed / Memorandum & Articles of Association.
• Shop & Establishment certificate.

Financial Documents:

• Business bank statements.
• Income Tax Returns.
• GSTR 3B.
• Audited financial statements (Balance Sheet, Profit & Loss).
• Sales invoices, contracts, or revenue statements.

Property Documents (for secured OD/CC):

• Sale Deed.
• Mother Deed.
• Sanction Plan.
• Tax Bill.
• Encumbrance Certificate.

For more on required documents, see our Business Loan Documentation Guide.

Interest Rates Comparison: CC vs. OD

• Cash Credit Interest Rates: 8% to 30% p.a. (depends on turnover, collateral, and business profile).
• Overdraft Interest Rates: 8% to 26% p.a. (depends on security type, applicant’s credit score, and bank policies).

Note: In both facilities, interest is charged only on the utilized portion of the limit, not the entire sanctioned amount.

Advantages of Cash Credit Account

1. Helps meet working capital needs efficiently.
2. Interest charged only on the amount utilized.
3. Flexible usage and repayments.
4. Improves business liquidity and operations.

Disadvantages of Cash Credit Account

1. Requires security/collateral.
2. Strict monitoring by the bank (stock audits, statements).
3. Renewal required every year.

Advantages of Overdraft Account

1. Provides flexibility to withdraw beyond available balance.
2. Can be secured or unsecured.
3. Interest charged only on utilized overdraft.
4. Useful for individuals and businesses.

Disadvantages of Overdraft Account

1. Interest rates may be higher than CC if unsecured.
2. Limit depends on credit score and collateral.
3. Facility needs renewal.

CC and OD Account Difference – Comparison Table

When to Choose a CC Account?

• If you are a business owner with regular turnover and require consistent working capital financing.
• If you have assets like stock or receivables to pledge.
• If you want lower interest compared to unsecured OD.

When to Choose an OD Account?

• If you are an individual or business needing occasional liquidity.
• If you can pledge assets like FDs or property.
• If you want flexible short-term credit without business restrictions.

Expert Tips for Borrowers

• Always compare CC and OD interest rates before choosing.
• Check bank policies on renewal, documentation, and audits.
• Ensure timely repayment to avoid penalties and credit score impact.
• Consult with a financial advisor if unsure which facility suits your needs.

For official details, refer to Reserve Bank of India’s Lending Guidelines.

Conclusion

Both Cash Credit (CC) accounts and Overdraft (OD) accounts serve the purpose of providing short-term liquidity, but they differ in terms of security, usage, and applicability. While CC is primarily a business-focused working capital loan, OD provides broader flexibility for both individuals and businesses.

If you are running a business with continuous capital requirements, a CC account is usually more beneficial. On the other hand, if you are an individual or business needing occasional liquidity support, an OD account could be more suitable.

Related Internal Blogs:

• Cash Credit Loan: Interest, Eligibility, and Documents
• Overdraft Facility: Features and Process
• Overdraft Guide
• Business Loan Interest Rates & Eligibility

External Resources:**

• Reserve Bank of India (RBI)
• Investopedia – Overdraft

By understanding the CC and OD account difference, you can make an informed borrowing decision that supports your financial goals while minimizing costs.