Overdraft Facilities – A Permanent Solution?

Need a little more money in your wallet quickly? No problem – the overdraft facility to your own account makes it possible. Quickly to the ATM, withdraw money and that was it. Fast, simple, uncomplicated. But the offer has its pitfalls…and its price.

 One often has the impression that the only target group without a chance of an overdraft facility is children and young people. But this assessment alone does not necessarily correspond to the facts on the credit market. Because even minors can Рwith appropriate liability and the consent of their legal guardians Рtake advantage of a certain credit line as an extra to the bank account. Although this is indeed rather an exception, as most banks will hardly consider this. However, the assumption that low earners have little chance of success with an overdraft facility application is not generally correct. The fact that even people with very low incomes can obtain overdraft facilities is due to the general conditions prevailing in most banks.

How much “overdraft” can I get as an account holder?

The vast majority of all banks operate according to a clear rule: account holders can obtain an overdraft facility at almost all branch and direct banks, although an upper limit is almost always set in advance. Two to three times the monthly net income is regarded as the industry standard, so to speak. However, this rule usually applies mainly to bank customers with a “normal” income. Deviations from this are possible. Up and down.

This applies in particular to these groups:

  • Clients with above average regular cash receipts
  • Persons receiving state benefits as “income
  • Self-employed and freelancers without a fixed monthly income
  • Account holders who have repeatedly overdrawn/overdrawn the overdraft facility

The latter customers should keep one danger in mind above all. What is meant is the unexpected request for a full refund of the balance.

Is there a risk of premature credit repayment?

This question is important on closer inspection for two reasons. Firstly, as a customer you should not constantly make use of the individually defined credit line or even put the account into the red beyond that. The house bank will certainly turn a blind eye a few times. After all, the interest rates for a tolerated overdraft are usually even higher than the standard market overdraft interest rate. And even this can be seen in a negative light. While overdraft interest rates are already at ten percent or more per year anyway, the interest rates for overdrafts usually increase by another few percent. The most expensive offers on the market are around the lower level of a typical credit card interest rate. In addition, the bank will eventually put a stop to this.

The result is the aforementioned reclaims. However, if you constantly use your disposition, you will hardly have the funds to balance your account completely. What then remains is usually only the taking out of another loan. A change in creditworthiness can also lead to corrections!

Can the bank subsequently adjust the overdraft facility?

This is also conceivable. If you use an overdraft facility, you should know These are always financial products for which the bank can make adjustments despite prior approval. On the one hand, it is precisely the all-too-committed use of the credit line that will cause banks to make downgrades. On the other hand, customers also have to ask many banks to set up higher lines of credit on request, especially when there is an acute need. The adjustment risk, however, plays a role above all with regard to the balance interest rate. This is particularly important because many consumers equate overdraft facilities with call loans. However, this is a big mistake that can lead to considerable additional costs. Not to forget: Either way, banks can make changes to the details of lending without giving reasons.

Dispo interest rates – always aware of changing cost risks

In the case of overdraft facilities, banks are guided by the current interest rate level – whereby a few percent premium on the current base rate is usually expected. In the case of overdraft facilities, interest is also only charged for funds drawn down. However, borrowers often receive a certain interest guarantee for an agreed term. In the case of an overdraft facility, the bank reserves the right to lower or raise interest rates at any time. For this very reason, providers usually mention the variable debit interest rate as the basis of overdraft facilities. Incidental costs may be incurred due to insufficient cover.

More overdraft facilities due to higher salary income?

Here the answer is: It depends. Anyone who uses overdraft facilities as a freelancer or self-employed person should not expect the bank to approve an increase in overdraft facilities after one or two better months. However, employees who can prove that they have received a salary increase or other supplementary funds have extremely good cards when it comes to negotiating higher credit lines. Self-employed or freelance bank customers will most likely have to prove that they have significantly better income for several months. You should always ask yourself the question: Is overdraft really the right choice in the long run?

Permanent use of overdraft facilities – the worst of all options

The fact that banks generally offer overdraft facilities as a temporary solution is not only for legal reasons. After all, banks must inform customers of the risks and high costs. Above all, the loans are only intended as a bridging measure. The bank will also inform you of this and will recommend a rescheduling to an installment loan from time to time if the utilization rate remains constant. And this step makes sense in terms of cost containment. Perhaps it is necessary to rethink your own expenses? If you really only need more money in the short term than you have in your account, the dispo is an unbureaucratic option. In the long run, however, any other loan is the better alternative. The only exception is the credit card. As mentioned above, it is even more expensive, regardless of the convenience of using a plastic card for payments and withdrawals. But this is a different matter.

So never forget possible costs when making arrangements, but also bear in mind the banks’ cancellation option. Otherwise, if you are asked to balance your account, good advice is expensive in the truest sense of the word. Even bankruptcies are possible if you do not get a loan for the complete repayment of the account balance.