Distinguish between the following:
Cheque & Bank Overdraft
ANSWER:
Basis of Difference
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Cheque
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Bank Overdraft
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Meaning
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It is an unconditional order directing the bank to pay a mentioned amount to a certain person.
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It is a facility given to a current account holder to withdraw amount more than what he/she has in his/her account.
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Charges
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There are no charges.
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Interest is charged.
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Eligibility
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All account holders are eligible for this facility.
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Only current account holders can enjoy this facility.
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Dishonour
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It can be dishonoured.
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It can never be dishonoured.
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Fee
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No fee is charged on the issue of a cheque.
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A small amount of fee is charged on the issuance of draft.
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Reliability
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A cheque might not get cleared due to numerous reasons like mismatch of signature and unavailability of funds.
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As it is issued only after the receipt of payment, it is more reliable.
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