What is an overdraft?

An overdraft is a financial service provided by banks that permits an account holder to withdraw more money from their checking account than is actually available. This facility essentially creates a temporary negative balance, allowing the account holder to continue to access funds despite running low on their account balance. Overdrafts can be a useful tool for managing unexpected expenses or cash flow issues, as they provide a way to cover payments even when there are insufficient funds in the account at that moment.

In this context, the other options do not accurately represent the definition of an overdraft. A loan secured by a property refers to mortgages or secured loans, which involve physical collateral. A penalty for late payment on a loan pertains to fees assessed on overdue payments, while a method of calculating interest on savings relates to how interest accrues on depositor accounts. None of these options capture the essence of an overdraft as a facility for accessing funds beyond the available account balance.