Overdraft
A transaction that exceeds the available balance in a bank account, resulting in a negative balance, typically triggering a fee from the bank.
An overdraft can occur when a scheduled payment, like an ACH withholding, is larger than the current account balance, and depending on the bank’s policy, the transaction may still be processed (with a fee) or declined outright.
Frequent overdrafts are functionally similar to negative days and are viewed the same way by underwriters, as a signal of potential cash flow strain, regardless of the specific terminology used on a given bank statement.
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