TOD full form in banking is Temporary Overdraft. It refers to a short-term loan facility granted by a bank to a customer, allowing them to withdraw more money than their available balance in a particular account. TOD is typically provided to meet urgent or temporary financial needs and is often repaid quickly, generally within a short period.
How TOD Works?
A Temporary Overdraft is usually granted on a case-by-case basis, based on the customer’s account history, creditworthiness, and relationship with the bank. This overdraft facility is generally linked to a current account and is provided with an agreed limit. The customer is allowed to overdraw from their account up to the specified limit for a short period, usually until their next deposit or income is credited.
Unlike a regular overdraft, TOD is not a long-term facility. It is a temporary measure to assist with liquidity issues, and banks may charge interest on the overdrawn amount, as well as fees for the service. The repayment is expected to occur swiftly, often within a month, but the terms can vary depending on the agreement between the customer and the bank.
Importance of TOD
- Emergency Financial Help: TOD provides a quick solution for unexpected expenses or urgent financial needs, offering customers flexibility.
- Short-Term Financing: It allows individuals or businesses to cover short-term liquidity gaps without going through the lengthy process of securing a formal loan.
- Convenience: TOD can be a convenient option for customers who need immediate funds but may not have time to arrange for a longer-term loan.