Banks offer their customers a large number of different services and programs. A rather interesting type of loan is overdraft. It is offered to individuals and business owners. A loan overdraft is a unique opportunity to spend more than is available on your account or card. Borrowed funds are issued for a short period of time, therefore, when the funds are first credited to the account, the debt is repaid. This service can be activated by citizens or owners of different companies, and sometimes banks connect it automatically when issuing a card or opening an account.
Overdraft concept
An overdraft loan is an unusual loan option, which consists in the ability to overspen the funds available on the account. If a person does not have the necessary amount of funds to make a major purchase, he can still pay for the purchase, as the bank will automatically provide the right amount on credit. At the same time, it is not required to apply and wait for loan approval.
Overdraft - what are these simple words? It is a type of loan, but to get borrowed funds you do not need to visit a bank branch and leave a request. A small amount of credit is issued if necessary to make any major purchase. Upon approval of such a service, the conditions for obtaining borrowed funds are negotiated with the bank. For this, the maximum loan amount, the calculated interest, the duration of the interest-free period, the repayment period and the possible fines and penalties to be withdrawn when arrears appear are determined.
Usually people use an overdraft when there is a sharp need for a certain amount of funds. For example, if you didn’t have enough of your own money before your salary. With the help of such a bank offer, you can make large purchases for which it is impossible to raise your funds. But at the same time, an overdraft loan is not an ordinary loan, so it has some differences from credit cards and consumer loans.
Service Features
Overdraft features include the following:
- It is offered not only with credit cards, but also with debit cards;
- it is drawn up exclusively on cards to which payments are regularly received, therefore salary cards are usually selected for these purposes, since in this case the bank is sure that the overdraft will be quickly paid off;
- sometimes it is connected for a credit card, which allows you to slightly go beyond the existing limit;
- borrowed funds are issued literally for several months;
- the amount that the cardholder can use is strictly limited;
- most often banks offer an interest-free period, which is 30 days, so if during this time the borrower returns the used funds, then he will not have to pay interest to the bank.
Overdraft - what are these simple words? It is an unusual type of loan, and it is offered to both legal entities and private individuals. To clarify all the features and the conditions for its use, it is advisable to contact the bank where the account is open.
Pros of using
Overdraft debit card has some positive parameters for the owner. The main advantages include:
- to get a loan amount, you do not need to draw up a credit card or apply for a loan;
- such a service is activated only once, after which it is possible to use the borrowed funds of the bank many times during the entire validity period of the card;
- no need to worry about the need to pay off the debt to the bank, since the first time you receive money into the account, the debt will be automatically repaid;
- the overpayment for such a loan is considered low, since the loan term does not usually exceed two months.
Therefore, many people positively perceive connecting this service to their card.
disadvantages
An overdraft loan is a simple loan that can be obtained without first submitting an application to the bank. Although it has many advantages, it also has some significant disadvantages. These include:
- the contract is concluded only for the validity period of the card, after which it will be necessary to renew the service again with new plastic;
- interest rate is considered high in comparison with the issuance of conventional loans;
- you need to pay off the debt in a short period of time;
- debt is repaid in full, and not in installments;
- banks often use different hidden commissions and payments, which customers do not even know about, so you have to carefully study the contract;
- banks unilaterally have the right to change the size of interest rates or loan repayment periods;
- some people don’t even know that an overdraft is connected to their card, therefore, if the card is handled carelessly, they may have delays;
- such unusual banking offers often cause people to fall into the credit trap.
Therefore, before signing the overdraft agreement, one should evaluate not only its advantages, but also its disadvantages. Often people refuse such a service because they fear that they will constantly have cost overruns.
Overdraft Types
Several types of overdrafts can be distinguished. These include:
- Allowed. To connect it, the cardholder independently draws up an application, which he passes to the bank. Based on this application, this service is connected to its payment instrument. The size of the limit depends on the financial condition and official earnings of the bank's client. An application for overdraft can be submitted when visiting a bank branch or through its official website.
- Unauthorized. It is called technical in another way, since it is connected automatically by the bank. Sometimes cardholders are not even notified that they have been connected to an additional free service. In some situations, this is due to technical errors or changes in the exchange rate.
- Unsecured. The client is not required any documents or collateral. Funds are issued for a short period of time, and the proposed limit is considered low.
- Secured. It is usually issued by companies that regularly use this type of loan. For this it is important to prepare a lot of documents and confirm their solvency.
In addition, the overdraft differs depending on the recipient of the service, as it can be offered to citizens or companies.
Terms of Service
Overdraft conditions for legal entities and private citizens are completely different. The following requirements are imposed on citizens:
- the presence of a permanent residence permit in the region where there is a bank branch;
- good credit history;
- the presence of a permanent place of employment;
- good salary;
- lack of other loans.
For legal entities, the conditions are slightly different. It is usually required that the company has been operating for at least a year, and the results of its activities should be positive. Different parameters affect the size of the limit, so the bank will necessarily evaluate the operations on accounts and cards held by the business owner.
How is it made out?
It is quite simple to issue an overdraft, so if a person wants to use such an unusual banking service, the following actions are performed:
- documents are collected that confirm that the client of the bank meets the numerous requirements of this institution;
- an application is submitted, for which you can come to a bank branch or use a special electronic form on the organization’s website;
- you must contact the bank with a debit card or a deposit for a large amount of funds;
- if the bank in which the person is a regular customer does not offer an overdraft, then any citizen can transfer his salary to another credit institution where this function is available;
- based on the application, the bank decides to connect an overdraft;
- a citizen must independently come to the department in order to receive information about what the credit limit is and whether an interest-free period is offered.
When drawing up the application, you can indicate at what limit the bank client expects.
Features for companies
Many banks offer overdraft for legal entities. persons. The features of such an unusual loan include:
- a company that relies on this service must have a bank account;
- employees of a banking institution pre-check all operations carried out on the account, as well as evaluate the financial condition of the company, since only with a good income this type of loan is offered;
- the account must have a regular cash flow;
- in addition, the bank takes into account the scope of the borrower, since if it is risky, then organizations usually refuse to connect additional specific services.
The disadvantages of this proposal are that companies are charged a fee for each tranche. The size of the fee must be clarified directly with the bank. In addition, for the entire term of an overdraft for a business, certain requirements for cash flow are established. If they are violated, the bank can disable this service at any time, so if the company needs borrowed funds, it will be necessary to apply for a loan in the standard way.
What is dangerous for individuals?
For citizens, connecting an overdraft is not considered a very pleasant event, as often this causes overruns and debts. Since people are sure that they can use the borrowed amount of funds at any time, they begin to more freely relate to their funds, so they often spend too much money that they can’t return on time.
Overdraft repayment is performed automatically, therefore, immediately after receiving a salary, a significant part of it is written off to repay the loan. As a result, people have too little money for living.
How is it disconnected?
People who agree to connect an overdraft are not notified about how it is disabled. Therefore, if citizens are not interested in using this feature, then they have a question about how to disable it. To do this, you need to contact the bank branch, where the corresponding application is drawn up. Documents to an existing bank account are attached to the application.
Refusal to use this banking offer does not lead to the calculation of any fines or commissions. If the bank charges a client fees, this is a significant violation that can be challenged in court. Additionally, you can file a complaint with the Central Bank.
Some banks offer the ability to disable the service directly via the Internet, so you do not even have to leave your apartment for this.
Conclusion
Overdraft is represented by an unusual type of loan that individuals or companies can use. It is usually offered on salary cards or credit cards. Cash is issued for a short period of time, and a low limit is also offered.
The debt is paid upon the first receipt of money on the card. This type of loan is often useful and necessary, but sometimes it leads to a debt hole.