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Overdraft Loan Costs: How Customers Can Reduce It.

What customers can do against the high costs of overdrafts!

What customers can do against the high costs of overdrafts!

If you have a checking account, you usually get an overdraft facility from your bank. This is often provided without the customer’s knowledge. The advantage of this is that the account can also be overdrawn if the money is no longer sufficient, for example at the end of the month.

But be careful, the cost of an overdraft facility should not be underestimated. Overdraft rates of over 10 percent and more are unfortunately not uncommon. Even though the European Central Bank is currently keeping interest rates very low.

Direct banks offer low overdraft rates

Direct banks offer low overdraft rates

The high interest rates are not particularly dramatic as long as the overdraft facility is kept within limits.

However, if you overdraw your account regularly, you should make sure that you choose a checking account with low overdraft rates. Direct banks have much lower costs for overdraft facilities than a conventional branch bank.

If you are interested, you can simply carry out a current account comparison and apply for the account directly online. The direct banks will then send you all the documents for opening an account.

As a rule, the costs of returning the account opening documents are borne by the respective direct bank as part of the Postident procedure. This process is carried out by all banks for identity verification and is free of charge for customers. The only effort is to go to the nearest post office.

Debt restructuring is the better way

Debt restructuring is the better way

Anyone who is regularly in the red with their checking account should, however, consider rescheduling with the help of an installment loan. Because in the long run, the costs for an overdraft facility are too expensive. For example, if you are permanently in the bank’s debt with 3,000 USD overdraft facility, you will have $ 330 for the overdraft facility at 11 percent interest per year.

That is 27.50 USD per month only for interest payments. The loan has not yet been repaid. In addition, there is no controlled repayment of the overdraft facility. New salary payments come into the account every month.

The loan may then be repaid at short notice. However, the balance at the end of the month is again in the red due to current expenses (rent, living expenses, etc.).

The bank grants an overdraft facility for regular payments. This is good business for them, from which the banks can finance themselves very well. Because interest of less than one percent is currently being paid for savings.

In return, if money is lent for over ten percent, the earnings for the banks are not bad.
If you do it cleverly, you can reschedule your overdraft facility via a so-called installment loan for 4-5 percent interest per year.

Debt rescheduling is often more sensible

Debt rescheduling is often more sensible

The regular repayment via an installment loan not only brings order to the spending behavior, but also saves a lot of costs for the overdraft facility.

This saves a lot of costs for the overdraft facility and has the further significant advantage of a manageable repayment with a payment target. Anyone who receives a cheap installment loan can easily repay the 3,000 USD from our example in 24 months at a rate of 130 USD per month (interest 3.65%).

Summary

Overdraft facility is not only associated with high costs. It also makes repayment confusing and therefore difficult for many consumers. The cheaper alternative is debt rescheduling.

This is currently available from interest rates of over 4% and enables a controlled repayment of the debt. Anyone interested in the terms of an installment loan can carry out a loan comparison on our website and possibly save costs.

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