Overdraft facility has been one of the most important loan options in Germany and many other nations for decades, making the explicit application for consumer credit at a financial institution. Basically, this credit model is open to any current account holder with a continuous credit, whereby the credit line granted is always related to the account balance or wages and salary payments.
Even if it is very easy to dispose of the overdraft facility, due to the high repayment interest it can hardly be seen as a permanent solution for financing projects. In the following, a critical look will show when the overdraft facility is available and in which cases it is better to use alternatives.
The basic design
The overdraft facility, also called overdraft facility or overdraft facility, is always linked to the management of a checking account. For this checking account, the bank requires regular wages or other payments. Depending on the amount of the account balance or the regularly paid amounts, the bank provides a so-called credit line on a voluntary basis.
The dollar amount specified by the credit line is available to the account owner as an overdraft facility, ie he can have the amount mentioned up to the credit line even without credit on the checking account.
Debit interest is charged for the overdraft of the account; if the specified credit line is exceeded, additional overdraft interest accrues. Depending on the financial service provider, the overdraft facility is settled at monthly or quarterly intervals, whereby the account holder must make credible efforts to repay the outstanding overdraft facility.
The major advantage of overdrafts
Translated from Latin, the overdraft facility is a credit facility, ie the account holder can have the specified credit line at any time without a separate announcement. Unlike a classic installment loan, there is no need to apply for the loan, nor does the borrower have to provide security or a good credit rating.
The credit line granted to him is based solely on the determination made by the bank or credit institution. This credit spread can be used again and again and z. B. compensate for small financial bottlenecks at the end of the month or larger purchases without real borrowing.
Interest rates very high compared to RatenLearn
The interest of an overdraft facility is very high compared to installment and framework learning!
A glance at the interest rates of banks and credit institutions quickly shows the main disadvantage of overdrafts. An effective annual target rate in the low, double-digit percentage range is currently customary in the industry; the overdraft interest rate is still a few percentage points above this.
While RatenLear can currently be taken out at house banks or on the Internet at a moderate, single-digit interest rate, the repayment interest on the overdraft facility is rather horrendous.
Most credit institutions also stipulate short time periods for the settlement of the account; the overdraft facility is to be settled in a market period of between three and six months.
In these cases, the overdraft facility is worthwhile
With a view to the repayment interest, it becomes clear that the overdraft facility is not a real alternative to an installment loan. Unfortunately, many borrowers with an appropriate credit rating are rarely aware of this fact, so that the credit line is used for expensive interest over many months. Instead, it makes financial sense to take out an installment loan over a short period of time and use it to offset the existing debt of the overdraft facility.
The overdraft facility linked to the current account was also not designed as a financial product for long-term financing projects but is intended to give the account holder a slightly greater financial leeway in the short term for special life situations. If, for example, an expensive repair has to be paid or if a high-quality household appliance is ordered towards the end of the month, there is no need to take out an installment loan thanks to the disposition loan.
For a few days, the overdraft facility is also worthwhile at the higher interest rates, until after that the next salary payment compensates for the existing debt.