An installment loan and a overdraft facility are two fundamentally different types of credit. The overdraft facility – or overdraft facility – is provided by banks to their solvent customers if they have a regular income. Depending on how high the income is, the bank will approve up to three net monthly salaries as overdraft facilities. The perfect solution for short-term use.
In general, a distinction can be made between a loan that is taken up for the overdraft facility or a loan that covers the overdraft facility. But there are still some things to keep in mind when it comes to credit despite overdraft.
Loan provides additional financial resources
In principle, the overdraft facility is a loan that provides additional financial resources in addition to bridging financial bottlenecks. However, it should not be used for large purchases. An installment loan would be much cheaper for this. Anyone who uses his overdraft facility should know that it should be balanced in the short or medium term. The customer can choose freely.
If the customer wants to buy consumer goods, quick credit – also called overdraft facility – is a good solution. However, the overdraft facility is the most expensive loan. It can have an interest level of up to 15%. If the customer then exceeds the credit line granted, the bank calculates interest again. If you compare it with an installment loan, the customer can expect an interest rate of 5-6% with a good credit rating.
The disposition is actually intended for short-term use. If an unexpected invoice arrives at the end of the month, but the account is empty, the overdraft facility can serve you well. However, it makes sense to leave this account overdrawn when receiving the salary. But many customers cannot get out of the overdraft. There is an unplanned utility bill, the youngsters need new clothes, in short the money is not enough in the back and in the front.
For many bank customers, an overdraft facility is the help they need from financial hardship. However, there are concerns, if the overdraft facility is always used without an amount being returned, a nice amount of interest will accumulate. The consequence of the customer’s creditworthiness is strained. Especially when the credit line is often overdrawn. Return debits may occur The bank no longer carries out transfers, the spiral of debt begins.
Anyone who is in such a situation should remember to take a look at the credit without any problems. This process is also known as debt restructuring, the overdraft facility is converted into an installment loan. The loan, despite overdraft, should then be planned so that the installments remain affordable, because this is the only way to escape the debt trap. The end of the loan is therefore predictable.
When taking out a loan, we recommend that you also redeem the overdraft facility at the same time. If the loan is approved despite the overdraft facility, the overdraft facility should be removed or at least reduced. If the loan is approved despite the overdraft facility and the overdraft facility is used, it is recommended that the amount used be settled within three or four months. If the incoming income no longer covers the overdraft facility, then an installment loan should be considered.
The credit despite overdraft should not be used for something new, but the replacement of the overdraft facility should come first.
The overdraft facility conditions
Before the customer applies for the loan despite the overdraft facility, he should use a budget to determine whether and which installment amount he can pay. The bank also demands a sufficiently high income. The Credit Bureau must not contain any negative entries. However, this was checked by the bank before the overdraft facility was made available. Had there been any abnormalities, the bank would not have provided the overdraft facility.
Usually, a loan is only a few thousand or a few hundred USD, despite overdraft. If the loan is approved to replace the overdraft facility, the bank will transfer the loan amount directly to the account. If the loan amount was chosen higher than the overdraft facility, the customer can freely dispose of the remaining amount.
The loan is paid off in constant monthly installments. The installments consist of the interest and the repayment amount. The customer can roughly control the length of the term if the rates should adapt to his income. Therefore, as previously mentioned, the customer should draw up an income / expenditure plan. This shows the rate that he could pay.
One way to avoid the overdraft facility is the so-called call credit.
It is managed with an independent account and can be described as an external planning framework. It is important to know that a call credit is cheaper than a overdraft facility. There are banks that only charge an interest rate of 4.85% to 5.22%. However, the overdraft facility, as noted above, can be up to 15%.
The customer can proceed with the call credit. He applies for the desired amount from his bank. As with a loan, the bank will check the creditworthiness despite the overdraft facility. The flexible credit line can always be used up to the agreed loan amount. However, smaller sums can be transferred to the checking account. Loan interest is only charged on the amount used. Interest is calculated until the loan is repaid. Since call credits often have variable interest rates, attention should also be paid here to the due market interest. Also with the call credit should be paid on the call amount every month.
The customer who has a bad Credit Bureau and has fully used his overdraft facility will have difficulties with a loan despite overdraft. Cream banks are very cautious when Credit Bureau is bad. The loans are mostly rejected.
The customer then still has the option of taking out a Credit Bureau-free loan despite overdraft. The funds come from abroad and are limited in their loan amounts. Since July 2016, three loan amounts have been provided instead of two. One time 3,500 USD, 5,000 USD and with good creditworthiness also 7,500 USD.
The terms of the loans are standardized, they are 40 months. The interest rate is between 11-12% even after creditworthiness. Neither the rates nor the terms can be changed. Credit Bureau will not query this bank, nor will the credit be entered. In order to receive the Credit Bureau-free loan, you must have a sufficiently high income and absolutely permanent employment without a fixed-term contract.