If there is not enough money in a bank account to cover a transaction, the bank authorizes the transaction anyway. In essence, it’s a financial institution credit line that is extended when an account balance hits zero. The overdraft feature enables the account used to make withdrawals even when there aren’t any funds in the account or not enough to meet the withdrawal’s cost.
Banks permit their customers to borrow money by granting them an overdraft. There is interest charged on all overdrafts in addition to the fees.
An overdraft occurs when the bank approves a withdrawal despite not having enough money in the account to cover it. Overdrafts enable consumers to pay their expenses even if they do not have enough money to do so.