Everyone is trying to keep track of their own funds. Successfully he succeeds or not, it depends on worldly wisdom, the ability to predict the development of events and financial intuition. At the same time, it is difficult to find someone who would not have to borrow money. The need to find a source of funds among friends and relatives, as well as the need for explanations, disappears if you have an overdraft. What it is? Is it different from a loan? Knowing the answer to these questions will increase financial self-confidence and economic literacy. This is what we will do.
By sounding so similar to the German word “overdraft” in fact - tracing paper from English, which means “short-term loan”. It is provided to the most reliable customers of the bank in the amount of a previously agreed amount.
Natural questions arise from this, provided that you agree to take an overdraft. What kind of loan is this? What are its conditions? Is it profitable? How is a credit overdraft different from a credit card?
In the banking sense, overdraft is not even a loan. This is an opportunity for the cardholder to borrow from the bank some cash, due to the limits of the limit, until the next salary is accrued.
The unused overdraft amount is always on the holder's bank card. Of course, borrowing is not free. Debt by payment is red, and with a certain percentage of the contract. Usually it is significantly higher than the loans that are usual for our understanding.
Another difference is that the repayment of the debt is made as a single (together with interest) amount at the time of receipt of the next salary funds on the card. Whereas credit card debt is usually broken down into a series of equal interest-free payments in the agreed time period.
Most often, the size of the debit card overdraft depends on the size of average monthly deposits and usually does not exceed this individual figure for each owner. Thus, the next receipt of funds fully repays the debt to the bank.
Please note that the owner of a regular, non-credit, card can easily become a borrower by accident. For example, if the payroll is delayed, and the client, not knowing about it, makes the necessary purchases, paying off the funds provided under the overdraft agreement. That this purchase cost more than expected, the cardholder can find out only after a month.
Settling a credit card a priori cannot be random for a client.
The most serious drawback of an overdraft is the credit trap. Very often a person does not fit into the amount allotted by wages. Having drawn overdraft funds once, subsequently does not have time to pay off the debt on time. This amount of debt goes from month to month, leaving the bank with the due interest.
If you decide when you find out everything about overdraft that this offer of the bank is not profitable for you, just refuse it. But there are force majeure circumstances when it is very necessary. Just be aware of the “pitfalls” of overdraft and use it wisely.