Interest

The borrower will be charged an interest rate based upon his/her position. There is a specific bank rate known as the prime lending rate (PLR), to which all the advances are usually linked. There will be a premium or a discount to this rate. If it is a top-rated borrower like a company that has a triple A rating then the overdraft might be available at a discount to the PLR. As the credit quality of the borrower worsens the premium over the rate goes up, which means the overdraft will keep getting costlier. Another factor that plays an important role in determining the interest rate is the relationship of the borrower with the bank. Good customers who have a longstanding relationship with their bank will also get a reduced rate that is applicable to them.