Information about what an overdraft is, can be useful in case of urgent need to receive cash. At some points, on the contrary, this function creates some noise. If there is no need for additional foreign exchange resources, the holder of the salary card must constantly keep a certain limit on it. Agreeing to such a program, you need to study the contract in detail, so as not to overpay extra interest.
What is an overdraft in a bank?
The overdraft service offered to individuals and legal entities is often a lending program with special individual conditions. Its features are as follows:
- transfer of funds to the client's current account;
- the amount of debt is written off regardless of the balance of cash;
- the interest rate on overdraft is regulated by the bank - it may be absent, accrue only in case of late payment or vary depending on the balance;
- Overdraft, as a rule, provides small amounts for a minimum period - for a period of temporary financial difficulties.
What is an overdraft on the card?
Cards with overdrafts were widely distributed. In most cases, they are assigned to the client's current account, to which he receives a salary or a deposit account. How overdraft works - the bank transfers to the client's account the amount stipulated in the contract, which will be at its disposal for a certain period.
At the end of this period, the client is obliged to pay the money and interest, depending on the terms of the contract. If additional funds are not required to the client, he may not spend them, keeping the overdraft limit or refuse such a service. At the same time, you need to remember how much you need to keep on the card - this is one of the drawbacks of such a banking product.
What is a permitted overdraft?
As a rule, the available overdraft is calculated depending on the income coming to the client's current account. Sometimes such a service can be automatically included in the client's salary project. A certificate of employment can serve as a confirmed income. Overdraft registration may require additional information:
- presence of a permanent registration;
- confirmation of work experience;
- no debt on other loans.
Overdraft limit - what is it?
In all cases, the provision of an overdraft is accompanied by a limitation on the limit of the funds used. The limit is the amount that can be used by the client for personal purposes and must be returned within a certain period. In most cases, it is calculated as a percentage of the amount of money on the settlement account and their turnover. An additional condition for using an available overdraft may be a reduction in the limit for withdrawing money and its increase when replenishing the account.
How does an overdraft differ from a loan?
Regardless of one function - the issuance of funds for the use of customers and their subsequent return with interest and without, the difference between overdraft and credit still exists. The following distinguishing features can be distinguished:
- As a rule, a loan provides monetary funds at a fixed interest specified in the contract, and an overdraft without it in the event of a timely return of money. If the overdraft payment is overdue, the interest on it may be much greater than the overpayment on the credit line.
- Overdraft, as a rule, does not require confirmation of income, but also provides for use a much smaller amount than a loan.
- The loan amount depends on the client's solvency, and the amount of the overdraft is from the salary that comes to a particular account or the amount of money turnover on it.
What is dangerous overdraft for individuals?
Having access to a certain amount of money, a person can forget about paying off a debt to a bank. This is called a technical overdraft - a debt when paying out cash. In most cases, it occurs when the available limit is overspent under the overdraft agreement. In this situation, in addition to the principal overpayment under the contract, there can be accrued interest for delay in payment, which is several times more than the amount spent.
There are cases when the client accidentally withdraws from the account more than usual amount, which includes the funds provided by the bank. As a result of such actions it is possible to get trapped and pay an extra amount. Sometimes when a new card is issued, the overdraft service is automatically connected to it, and if the customer does not know about it, it can overpay a considerable amount of interest. Therefore it is important to check all services assigned to a bank card. Take overdraft and forget about the requirement to keep the limit on the account - that's a big danger for the client.
How to connect an overdraft?
Having understood the essence of the overdraft, the client decides whether such a program is required or not. In the case of a positive response, you should contact the bank office to conclude the contract. The procedure for connecting an overdraft can vary for each bank. In some cases, it is automatically connected. Similarly, an affordable limit is calculated - depending on the monthly income and turnover of funds on the account.
In most cases, only an identity document suffices, customer notes may require some paper:
- reference work;
- proof of income;
- account statements.
How to disable overdraft?
If necessary, the overdraft service can be turned off. For this action, it is worth contacting the bank to terminate the contract. One of the conditions for such an action will be the absence of debt under this program. In different financial institutions there are various conditions for the provision of such a financial product. They are necessarily written in the contract. If there is a condition that the overdraft can not be disconnected, then at the signing of the agreement, you can specify a zero limit for the provision of cash.
It does not matter what the client chooses - a loan or an overdraft program, you need to take into account that both banking products are connected with financial encumbrance. Interest for the use of the bank's funds and the terms of their accrual may vary, therefore, no matter how tempting the proposal, it is important to remember what an overdraft is, and what financial risks it may be associated with.