Berlin.
If the checking account slips into the red for a longer period of time, high overdraft interest is incurred. The cheaper solution: rescheduling for a framework or installment loan.
December and January are the most expensive months for many consumers. Gifts have to be paid for, the party itself costs money, as does the New Year’s Eve party. And then there are the annual costs for insurance and often a vacation. Lots of people use it overdraft facility their checking account to cover all the expenses. But with an average interest rate of ten percent, it is expensive and not the best choice.
The money guide Finanztip recommends not financing consumption on credit. But if it has to be, a line of credit the better choice. Because that often has lower interest rates than that overdraft facility.
Framework credit cheaper than overdraft facility
at line of credit consumers get a line of credit that they can use flexibly. That means you borrow something money and pay it back later and can always fall back on the credit line. They decide for themselves how much money they borrow. Only the debt earns interest.
The framework credit works in a similar way to the overdraft facility. However, some providers require their customers to provide at least part of the debts repay every month. And that makes perfect sense, because it prevents the entire debt from being carried around with you over and over again. The banks also allow the debt to be repaid in one fell swoop. If this is financially possible for consumers, they should do so. No debt and no interest on loans is always a better choice.
The months around the turn of the year are cheaper if you get a credit line in good time and use it to pay for the expenses. After that, consumers can use this constant emergency cushion even after January throughout the year Interest charges save up.
Incidentally, such a credit line does not necessarily have to be applied for at your own bank, it also works as a separate product at other banks.
Expensive overdraft facility: The three ways out of the minus
But what if it’s already too late and the account is in the red? Then it is compensate for the minus – and as quickly as possible. Because banks can reduce or even terminate the overdraft facility at any time. Your customers then have to repay the debt in a timely manner, which is likely to be difficult. If so, one more account termination added to this – because the banks are allowed to do that at any time – the chaos is perfect.
There are three possibilities:
- Pay off the overdraft facility quickly with each incoming payment
- A credit line
- An installment loan
But when does which solution make sense?
Anyone who has gone just a little beyond their means automatically cancels the overdraft facility with each incoming payment. Interest continues to be paid on the remaining debt – every day. If the sum is larger, it is usually better overdrafts compensate in one fell swoop with a cheaper loan.
One option is the framework credit mentioned. It always fits if the debts are not too high. In addition, consumers should take a targeted approach and actually pay off the minus. And also pay back more than the provider asks for. Is the mountain of debt If you have already reached a higher four-digit amount, Finanztip recommends a classic one installment loan to complete.
This is then possibly the better and cheaper option. Depending on your own creditworthiness, it is also cheaper than a credit line and overdraft facility.
Overdraft interest against installment credit: A sample calculation
An example: If someone pays off a debt of 3000 euros with an overdraft interest rate of 11.50 percent over two years, it will cost them around 380 euros in interest. At a installment loan with 5.65 percent it is 200 euros less.
Another advantage: the regular installments force consumers to actually pay off the loan. However, they must ensure that the rate remains affordable for them. Otherwise they may slip into the overdraft facility to pay the installment loan. This not only gambles away the interest advantage, the financial situation shakes even more.
Debt counseling can help
If the debt grows too much, it can easily happen that the bank cancels the overdraft facility and other providers do not want to give you a loan. They doubt they will see their money again. That rescheduling is no longer possible.
Even if it’s difficult: If you are heavily in debt, you should seek help, for example from a debt counselor. It’s best to start as soon as possible. Because the Debt Counselor can hardly cope with the onslaught on their advisory services. Waiting times are pre-programmed.
Tip: Spending stretches
However, if you have an important purchase to make, there is a little trick: when you go shopping invoice pays, there is a little more time to settle debts: 14 to 30 days. You can extend it longer if you agree to pay in installments. However, it should then be free of interest.
It is best to write on the calendar when the payments are due. However, this is usually only a sensible option for well-organized people who can overview the various payment flows and billing data and also pay attention to further expenses and income.
This article appears in cooperation with finanztip.de. The money guide for consumers is part of the Finanztip Foundation.
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