Many people are familiar with credit cards. A number of people even have several credit cards. But not everyone has heard about overdraft service. However it has its own advantages in comparison with a credit card.
What is an overdraft
The meaning of this service is the possibility of overspending. For example, if we are talking about a credit card, the bank opens an account in the name of the client, on which the bank’s money is kept. And the owner of the card will be able to withdraw money from the account. There is a relatively large limit and available repayment period.
In the case of an overdraft, this service is connected to the client’s existing debit card. Once connected, the cardholder will be able to withdraw more than there is money in the account. This is a great option to get some borrowed money if you don’t have enough of your own on your card.
Features of the service:
– Connected, as a rule, to a customer’s “payroll” bank card.
– Ability to go into “minus”.
– High interest rate, which usually exceeds the rate on credit cards.
– Free connection.
– Free maintenance.
– Short repayment period.
– Limited overdraft amount.
– Bank sanctions for late repayment.
Yes, usually the service is connected to the salary card, because the creditor needs to see the movement of funds on the account. Often overspending does not exceed 50% of the average monthly amount of receipts on your payroll card. Some banks offer a larger limit.
Connection to the service and maintenance is usually free. The interest rate in most cases is higher than on a credit card. But the fact is that the repayment period here does not exceed 1-2 months. And during this short time a lot of interest will not accumulate even with a high interest rate.
Advantages of an overdraft
– Easy to connect.
– Access to money when you need it urgently, but the account does not have enough.
– The ability to “overdraw” before your paycheck.
– Automatic repayment of the current debt after receipt of funds on the card account.
– No additional charges.
– Small interest overpayment due to a short repayment period.
An overdraft card is more profitable than a credit card in a number of cases. It is convenient in that the money is always at your fingertips, even if it is not on the card. It will always be possible to “intercept” from the bank. Of course, the available loan amount isn’t that big. But the overdraft is not intended for withdrawal of large sums for a long term. That’s what a credit card is for.
And an overdraft is useful for small expenses for a short term. For example, again, you bought some goods in a store, and a few days after receiving your salary you immediately repay the debt. Overpayments will be relatively small, and there are no costs.
Problems can arise if you fall behind on your payments. Your overdraft debt will be automatically repaid once the money is in your account. If you don’t pay it in time, the bank will impose penalties. For example, the bank will impose a higher interest rate, penalties, etc. Therefore, you should be disciplined financially.