When the overdraft interest becomes too expensive

The dispo is practical. It is there when you need it. The only problem is that once you are in it, it definitely sparks some suction. There is an uneasy feeling in the stomach as the account seems to be holding tightly to the red numbers. And with the settlement in the quarter comes the bad awakening: the dispo is expensive. Interest rates are around 10 percent nationwide, well above the interest rates on a loan. But when should you use the overdraft and when is debt rescheduling advisable?

What is the overdraft facility??

Actually, the overdraft facility is simply a tolerated overdraft of one's own account. Depending on the income chosen the bank fixed a call credit, which it attaches to the account. If you still have 10.00 euros on your account, but go shopping for 100.00 euros, you simply pay from your account and use the overdraft facility for this purpose. In general, the dispo credit is fairly simplistic:

  • Application – most accounts are immediately linked to an overdraft facility. The available credit amount increases after three months, alternatively it can be changed.
  • How to use it – any overdraft automatically draws on the overdraft facility. So there's no need for a new application.
  • Repayment – there are no rules. Each receipt of money decreases or balances the minimum amount. This is one of the problems with the overdraft facility, because the balance automatically reduces the available plan amount. Several people have the problem that the account slides deeper and deeper into the overdraft.
  • Problem – the tolerated overdraft is one thing. However, if you overdraw your overdraft, you can quickly get into trouble. Often, banks expect the overdraft plus overdraft to be paid off within a short period of time. If this does not happen, the dispo will be terminated.

Ideally, the overdraft facility is only used for a short time to bridge the gap. Should be on 28. If the car breaks down in the middle of the month and needs to be repaired, the dispo is ideal, as long as the coming salary is enough for the fixed costs plus repairs. It is also okay to use offers that expire before the salary is received. It only becomes problematic if the account is always in overdraft and cash receipts have only marginal effects on the plus area.

The interest rates are very high

As mentioned in the beginning, the average overdraft interest rates are almost 10 percent. For those who only use the overdraft every now and then, this is of little interest because:

  • Calculation – the overdraft is calculated on the days used and the amount used in those days. If you're down 400 for a day in a quarter, you're barely paying dues. However, those who are in the deficit for the entire quarter with the sum will feel the cost.
  • Settlement-most banks settle the overdraft on a quarterly basis. Fundamental to the settlement are the respective minus amounts. In turn, they are calculated on a daily basis, so there is a difference in cost between a day with 400 euros in the red and a day with 1.000 euro.

So if you're in overdraft for a longer period of time, you'll pay higher fees. You also run the risk of getting closer and closer to the limit. This is the so-called dispo trap, because practice shows that the use is always intensified, eventually the amounts cannot be fully balanced, new bills are paid, the dispo is used more – at some point the limit is reached and the account is just in plus for a few days. Before it gets to this point, action should be taken.

The costs of the dispokredit are often higher than those of conventional loans. Photo: @ markus spiske / unsplash.Com

Debt restructuring: what to consider?

The overdraft is the easiest loan to use when it comes to debt restructuring. Since there are no repayment agreements, no fees for early redemption, customers have to pay attention to quite little when they want to redeem the overdraft with a cheaper loan:

  • Credit selection – in the meantime, especially in the case of online loans, there is already the pre-selection of the overdraft facility. It makes sense to choose a loan with this purpose of use.
  • Comparison – now the credit comparison can take place. Of course, it is important that the interest rates are below the level of the overdraft rates. However, this is almost always the case. Many loans today also offer free unscheduled repayments or even free early repayments. These loans are preferable because they allow you to become debt-free without difficulty.
  • Speed – those who want or need to get out of overdraft quickly should choose a digital loan. Everything is done online, from the application to the check to the signature and verification. In the best case it takes less than 48 hours until the payment is made.

And how does the debt restructuring work? That's the beauty of the overdraft facility, because you don't have to go through the hassle of applying for a debt restructuring. Since the overdraft is settled with a cash inflow, the debt restructuring is done as soon as the credit is transferred to the account. But what are the advantages of debt rescheduling?

  • Cheaper – the interest rates on normal loans are almost always well below the interest rates on dispo loans.
  • Security – many people find it easier to pay a fixed rate each month, which they can plan to keep fixed. At the same time, the overdraft is now triggered and it is easy to see what money is available each month.

Generally, only anyone who uses the overdraft on a regular basis and for an extended period of time can be advised to reschedule the debt. There have long been smaller credit of 1.000 euros, so that even smaller dispo loans can be rescheduled without having to borrow a significantly higher sum.

Conclusion – overdraft and debt restructuring are both important

The dispokredit makes sense. The only problem is that it should not be used long and extensively, as it is expensive and there is always the danger of the dispo trap lurking. Debt restructuring can now help. Online there have long been small loans and also loans with higher sums, which are much cheaper than a dispo and which are meant for debt restructuring. For the debt restructuring itself, the user doesn't even need to do more than take out a loan and wait for it to be paid off. Once the money is in the account, the overdraft has practically rescheduled itself.