What is an overdraft and how is it different from a loan? What is an overdraft
Hello! In this article, we will talk about overdraft.
Today you will learn:
- The concept of overdraft;
- Differences from conventional lending;
- How to get an overdraft.
Overdraft is often called a kind of magic wand, which is at hand at any time. Unforeseen situations happen to everyone, and there is not always money to solve the problem. How to use this financial instrument for the benefit, and not to the detriment of ourselves, we will talk today.
A bit of history
Initially, banking organizations in the Russian Federation provided overdraft facilities only to institutions and organizations. If the company did not have funds, it could use borrowed funds.
Gradually, this service became available to ordinary citizens. And the scheme by which it is provided is similar to the scheme for .
The concept of the term overdraft
Let's explain this concept in simple terms. Imagine the following situation: you are the owner of a regular card of a bank. You receive monthly payments to it and other payments. It is clear that you can only use the money that is currently available in your account.
An overdraft allows you to spend more money than you have. At the same time, banks are not interested in what you spend these amounts on; this financial instrument has no intended purpose. There is simply a limitation, a kind of limit, beyond which you cannot go into the red.
You can use the overdraft more than once in a month: the limit will decrease in the process of how you use the money, it will be fully restored as soon as you return the amount of the debt.
In short, an overdraft is one of the varieties of bank lending for a short period.
The reader may ask the question: why do you need an overdraft? Let's explain with a simple example.
Example. An unpleasant incident has occurred: the home computer you are working on has broken down. It takes a long time to wait until the salary, and, alas, the equipment cannot be restored. It turns out that you will not be able to avoid buying. Therefore, you borrow the amount from your bank, and return it as soon as you receive a salary. You don’t need to go to the office, as soon as you receive the money, the debt will automatically be written off along with interest.
Overdraft and credit: differences
Often people consider a loan and an overdraft to be the same product. In fact, there is a significant difference between them.
Let's take a closer look at the differences:
- The term for which the loan is given. is a long-term product, an overdraft is a short-term one.
- Sum. The size of the loan is larger, often it is even several times larger than the monthly salary. Overdraft is the amount of salary per month.
- Redemption. With an overdraft, you repay the debt to the bank by making one payment. Payments on the loan are divided into equal amounts for a certain period.
- Overpayment percentage. The overpayment on the loan is less than when using an overdraft. This effect is achieved due to the difference in terms of the loan.
- Issuance and return procedure. To apply for a loan, you must visit a banking organization and collect the necessary documentation package. But you won't get instant money either. In the overdraft situation, everything is exactly the opposite.
If you compare the receipt and salary overdraft, then for you, as a borrower, the first is more profitable. Interest rates are lower, and the loan amount can actually be more.
A credit card is also more beneficial in this regard, especially if you will be depositing funds using a grace period. In this case, the banking organization does not charge interest.
Pros and cons of an overdraft
Consider both sides of this financial instrument.
Pros:
- No need to open a separate account;
- It is issued easily and quickly, in some banks automatically for payroll clients;
- You need to pay% only for the funds that you actually used;
- If necessary, you do not have to borrow money from friends and acquaintances.
Minuses:
- You need to repay the loan quickly, in one payment;
- At the time of crediting funds to the card, the debt is written off automatically;
- The interest rate is quite high;
- You need to constantly monitor the status of the account.
Overdraft types
In this part of our article, we will consider the main types of overdraft for individuals and legal entities. Let's give a brief description of each.
Salary overdraft
This type of loan is provided on your salary card. The overdraft amount can be used for any purpose, it is not required to document the expenses. Interest will be charged to you on the money that you actually spent, only for the days of using the loan.
The downside here is one thing: a small amount is provided - 1-2 monthly salaries. Withdraw cash from the ATM of the bank whose services you used to see the amount of the loan, which will not burden you.
The main plus is the following: you can use the funds around the clock.
Technical overdraft
It is provided without analyzing your financial situation as a borrower.
It is calculated simply: a coefficient of 0.95 is multiplied by the amount that has been credited to your account over the past three days.
This type has a number of features: for example, if you violate the terms of the contract at least once, your credit limit will not only be revoked, but additional penalties will also be imposed.
The average interest rate is 15% per annum. Interest is charged on the actual amount owed.
You must submit an application for receipt to the banking organization, as well as attach photocopies of documents that confirm that funds are received on your account every month.
Standard
It is a classic option. The interest rate is about 14-14.5%. In this case, the prerequisite for the provision is the following: money must be received on your current account at least 12 times a month. This type of overdraft is used mainly by legal entities.
For collection
It is usually issued by such clients, most of whose proceeds are collectible. In addition, he must hand it over personally to a bank account. The term of such a loan is 12 months, but it can be extended.
To use such an overdraft, you need to always have a stable income, and there must be a regular movement of money in the account.
This is an overdraft for legal entities, namely for those who can confirm their solvency with the help of guarantors.
Advance overdraft
Such a loan will be provided to you if you have proved to the banking organization that you unquestioningly follow its requirements. In order not to lose such a client, he is offered to issue an overdraft.
As for other terms of provision, they will depend on how reliable and solvent you are.
Overdraft Features
The main features are as follows:
- The loan amount is renewed during the entire period of the agreement;
- Linked to a specific card account;
- Payroll customers of the bank receive benefits.
How to use an overdraft
You need to be able to use this financial instrument correctly so as not to end up in the so-called “mousetrap”.
- Track the status of the account;
- Do not violate the terms of the contract and avoid delays;
- Avoid overspending.
Do not lose control over your income and expenses, otherwise, if you get a taste, you can purchase other loan products. Ultimately, such thoughtless use will lead you to large debts.
I would also like to note:
- If your income is low or unstable, do not use an overdraft.
- If you were the owner of a salary card with an overdraft, but changed your place of work, do not throw away the card. First, check if the debt is paid in full. Due to your inattention, you can face a very unpleasant surprise: huge interest and fines for a loan that has not been fully repaid to the end.
The last advice is the simplest: do not spend more money than you can return.
Overdraft for individuals: conditions for obtaining
In order for this service to be available to you, you must meet the following requirements of a banking organization:
- You must be the owner of an already opened account or card, through which funds are constantly flowing;
- Registration must be in the territory where the banking organization is located;
- The work must be permanent, and the requirements for seniority are different everywhere;
- There should not be any debts to the bank.
An overdraft agreement with an individual is concluded for no more than a year. It can be extended by filing an application.
Required documents:
- Your passport and any other document of your choice;
- Overdraft application;
- Questionnaire;
- if you are not a payroll client. Not all banks ask for it.
Overdraft for business: how to get
The standard scheme for granting a credit overdraft is as follows: it is provided for up to 1 year, and the maximum amount is determined on an individual basis.
The borrowing company is subject to the following requirements:
- You must provide information about the turnover of your company for a specific period of time;
- in a banking organization, equal to the amount that you want to receive as an overdraft;
- Your company's activity in a specific area must be more than a year;
- On the date when the overdraft will be opened, you should not have orders and claims that are not paid.
Documentation
Banking organizations check the reliability of their borrowers very carefully.
If the borrower is a company, then you need to provide the following package of documents:
- An application filled out in the form of a bank;
- companies;
- Certificate confirming state registration;
- Photocopies of passports of managers who have the right to sign documents;
- Certificate ;
- Information from other banks, if current accounts are opened in some;
- Data on open active credit obligations.
It is worth noting that if the overdraft amount does not exceed 6 million rubles, then they will not closely study financial indicators, they will simply give you funds at a higher percentage.
Advantages of an overdraft facility for legal entities
The undeniable advantages include:
- The application mechanism is simple, especially if your company can be serviced by this banking organization;
- You can get the required amount of funds if they are not enough for successful management;
- You can use not the entire limit provided by the bank, but only part of it.
Underwater rocks
We will reflect the main disadvantage of an overdraft for a legal entity: if the state of affairs in your company is unstable, the limit will either be withdrawn or significantly reduced.
The most important danger that can lie in wait for you is an overestimation of your own strengths. And there is no difference whether you are a legal entity or an ordinary person. Anyone can get into debt. Calculate everything soberly.
It is not in vain that banking organizations monitor the state of affairs in the company of a potential borrower for a long time. And only after a thorough analysis of the cash flow, a decision will be made on the establishment of the overdraft amount for your account.
How is overdraft calculated?
Calculation of the maximum limit is an important step when opening an overdraft. You will not be given a specific amount in advance, you will know it at the moment your application is reviewed and approved.
The limit that the bank indicates in its advertising offer most often refers to loyal and already confirmed customers.
So, taking into account what conditions the limit is calculated:
- Taking into account the state of your credit history: did you take loans, did you miss payments, were there any delays.
- To what extent did you provide the bank with a complete package of documents: did you collect a minimum or attached some additional ones.
- Do you have guarantors or guarantees provided by a third party;
- How long have you been in business, how long have you been working at your last job;
- What is your salary or account turnover and revenue, and so on.
Each banking organization may pay attention to other criteria, we have considered only the main ones that directly affect the calculation.
Procedure and calculation formulas
Let's take a closer look at this procedure:
- You apply for an overdraft and attach the required documents;
- The banking organization considers and processes the information received;
- You get access to a loan.
In addition, the calculation also depends on the type of overdraft you choose. Due to this, the calculation of the limit differs in different banks.
The most commonly used approaches are:
If the overdraft is standard, the formula looks like this:
L \u003d x% * O, Where:
- L is the limit;
- O - turnover per month.
A technical overdraft does not have a special calculation formula at all.
The advance overdraft has the following formula:
L \u003d O (a) / 3, where:
- L - limit;
- O - account turnover;
- 3 - reporting periods.
Other factors may apply, depending on a number of factors:
- From the period of the client's business;
- From the presence of collateral;
- From debt obligations to other banking institutions;
- From whether there are additional guarantees.
How to apply for the maximum limit
Its issuance is possible only if you fully meet all the requirements of a banking organization.
So, to get it, you need:
- In addition to the minimum package of documents, provide additional information;
- Be the owner of an impeccable credit history;
- Back up your application with additional guarantees: a pledge, a surety, and so on.
Interest accrual
For legal entities, interest is calculated based on which loan program was chosen. The date of payment of interest is set either on the last day of the month, or on the date on which the overdraft must be repaid.
In addition to overdraft interest, the legal entity will be charged a commission for issuing a loan, as well as for debt accounting.
If we talk about a salary overdraft, then interest is charged at the end of the reporting period. They are written off every first day of the month following the reporting one.
At the same time, you will be charged a fee for using the credit program, as well as a number of other commissions.
The main debt must be repaid at the moment when salary or other funds arrive in your account.
How to calculate overdraft interest
The methodology for calculating interest is regulated by the Central Bank of the Russian Federation.
Basically, four calculation options are used:
- At a rate that is fixed;
- At a floating rate;
- Using the compound interest formula;
- Using the simple interest formula.
Most banking organizations apply the calculation depending on the amount you actually spent. Therefore, it is more beneficial for you to pay off the debt as soon as possible.
When calculating %, the following is taken into account:
- What is the amount of your loan;
- Interest rate;
- How many days in a year;
- How many days did you use the credit line.
In all banking institutions, the repayment process is automated. For spending over the limit, a commission is taken in an increased amount. For an overdue overdraft, you will be charged fines and penalties.
If you are a legal entity:
P \u003d (O x C x D) / 100, Where:
- P is interest-bearing debt;
- O – overdraft amount;
- C - the rate on the loan per day;
- D is the number of days the loan is used.
If the overdraft is salary:
PZ = (OK x S x D) / 365 days, Where:
- PZ - debt in%;
- OK - remainder;
- С – rate in % per year;
- D - the actual number of days of use.
There are also online calculators for calculating overdraft interest.
Example. Let's imagine that you used the overdraft facility 2 times in May 2017. The first time in the amount of 20,000 rubles (05/11/2017) and the second time in the amount of 35,000 rubles (05/22/2017). The maturity date is 06/01/2017. Interest rate - 15% per annum. So, we consider: from 05/11/2017 to 05/22/2017 (debt 20,000 rubles) you will be charged% in the following amount: (15/100/365*12)*20000 = 98.63 rubles. For the period from 05/22/2017 to 06/01/2017 (debt 55,000 rubles), you will be credited: (15/100/365 * 11) * 55,000 = 248.63 rubles.
As a result, the interest debt will be equal to: 98.63 + 248.63 = 347.26 rubles.
To find out if your salary card has such a service, contact your employer's accounting department or visit the official website of the bank that services your card.
Withdraw money from an ATM, and also pay for purchases on the next day after the funds are credited, as they do not always immediately arrive on the account. Because of this nuance, you will be charged a certain amount from the overdraft, since it is at your disposal all the time.
Banks providing overdraft service
Alfa Bank
Offers for registration an overdraft with% rates from 15 to 18% per annum. The maximum limit is 10 million rubles, the minimum is from 300,000 rubles.
For registration, a pledge is not needed, but the guarantee of other persons is highly desirable.
It is worth noting that the banking organization is large, well-proven, but with a rather tough attitude towards debtors. Only strict observance of the terms of the contract and the payment schedule is welcome here.
Sberbank
The bank is one of the largest in the country, is distinguished by stability and resistance to various financial shocks. He survived several financial crises in the Russian Federation, which, of course, characterizes him only positively.
An overdraft can be issued here, another small business and large companies. If you have a business that functions stably, then it is possible to get a credit line without collateral.
It is also not a prerequisite for having a credit history specifically in this banking organization.
VTB
In this bank, an overdraft can be provided to both legal entities and payroll workers. It is worth noting a rather high interest rate: from 22 to 25% per annum (for individuals). If you are an entrepreneur or a premium card holder, then the rate for you will be from 14.5%.
Tinkoff
The bank is still young, but has already gained popularity and trust of customers. At the beginning of this year, the bank launched an overdraft for those persons who are holders of a debit card.
If earlier it was necessary to issue a credit card, now you can connect the option to your debit card. While the service is not available to everyone, but in the near future this offer will be valid for all customers.
Conclusion
Whether it is good to use borrowed funds or not - everyone decides for himself. It is clear that if we all lived “within our means”, without using loans, banking organizations would lose the bulk of their customers.
Therefore, an overdraft in this case can be called a tool that attracts people who are not inclined to borrow money, especially from a bank.
On the other hand, if you use such an offer correctly, and not thoughtlessly, you will not lose anything, and money for some extreme case will always be at hand. Therefore, the main thing is to keep the amount of your expenses under control, and repay the debt on time.
Irina Sherbul
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business vocabulary
Definition, features, pros and cons of the service
The first overdraft was issued in 1728, when a client was allowed to take £1,000 more than was in his account. The loan was issued by the Royal Bank of Scotland in Edinburgh.
Article navigation
- What is an overdraft in simple words
- How does an overdraft with a grace period work?
- What does credit limit mean?
- Advantages and disadvantages of a banking product
- Why is overdraft dangerous?
- Terms of provision for bank customers
- Overdraft types
- Permitted – the standard model for all types of overdraft
- Technical overdraft - what is it
- Salary overdraft
- Micro overdraft
- Overdraft secured
- Umbrella
- Unsecured overdraft for a large amount
- Credit and overdraft - what's the difference
An overdraft is a microloan for a short period of time. An overdraft loan has a number of features that make it beneficial for individuals and legal entities.
What is an overdraft in simple words
A card overdraft is a loan that you can get at any ATM using your debit card. To do this, you need to draw up an agreement with the bank to connect the quick loan service once.
The concept of overdraft in translation from English means "overspending". This service makes it possible, in addition to fixed assets, to use additional ones, as a loan. Accruals are made to the salary card of an individual or to the account of an individual entrepreneur.
When withdrawing additional funds from the card, the first money received on the account will be transferred to the bank as a payment of the debt.
A bank overdraft provides an opportunity to quickly receive the funds you need at the right time. But you can use it only if you are sure that you can quickly repay the debt. Overdraft debt defaults can result in high interest rates.
How does an overdraft with a grace period work?
The scheme of the overdraft is to provide a loan for a certain period, often 30 days, but upon additional agreement with the bank, it can be extended up to 60 days. At the same time, a certain percentage is charged for each day of debt, corresponding to the annual rate of the bank.
The grace period allows you to avoid the accrual of interest if the debt was repaid on time. More precisely, by taking a loan from a bank in the amount of 1000 rubles, you will return 1000 rubles, without overpayments. The main condition for such an option is the payment of the debt within the time period established by the contract.
You need to know what an overdraft limit is and fully comply with it. Violation of the established restrictions will entail penalties from the bank.
What does credit limit mean?
When connecting an overdraft, a limit on the loan amount is set. It is tied to the size of the turnover of funds on the account. The limit of the installed option will depend on the salary of the individual. For example, 10,000 rubles are credited to the account every month. The loan limit can be equal to this amount, but no more.
When checking the account, the ATM may display the available balance, taking into account the overdraft. Be careful not to confuse fixed assets with credit.
Conditions depend on the bank and your credit history. In certain credit institutions, they can provide a loan of up to 50% of the turnover amount.
Please read the contract carefully before signing up for the service.
Advantages and disadvantages of a banking product
An overdraft is a special form of crediting an account, a convenient option for a bank card that will allow the owner to receive a number of advantages if a loan is needed.
The main advantages of the service:
- Low percentage. The rate is on average 2-6% lower than that of conventional loans.
- Automatic return of debt to the bank. If the balance of the client's account is positive, the funds will be automatically debited and transferred to pay the debt.
- Independent regulation of the amount of debt. Whether or not to use the loan is up to the client. If you need a loan, the borrower himself determines the amount (within the established limit) that he wants to receive at that moment.
- Fast connection. An important point that is analyzed by a bank employee to connect the option is the movement of funds on your current account. The banker can receive such information within a few minutes, so it will not take much time to process a loan for your card.
The advantages listed above make an overdraft one of the best ways to get a microloan. But at the same time, it is necessary to take into account the disadvantages and risks of the service.
Among the disadvantages are:
- Limited loan options.
- Monthly repayment. It is necessary to close the debt 100% within the agreed period.
- You need to keep the money flowing. The movement of funds on your account must correspond to the amount agreed in the agreement with the bank.
In case of violation of the second and third points, the bank may impose penalties on the borrower. If after 25-30 days the debt has not been paid, interest is charged, increasing the debt.
Why is overdraft dangerous?
Regularly using an overdraft, over time, customers begin to forget to return funds to their account in a timely manner. Such an oversight will lead to a number of consequences.
Late payment of the debt is a violation of the terms of the contract, which may lead to:
- Fine. The Bank has the right to impose sanctions on the borrower in case of a delay in the return of funds.
- An increase in the interest rate. By the next loan tranche, the rate may increase by several percent.
- Denial of credit. With a regular delay in repayment of the loan, the bank may completely refuse to lend and terminate the contract.
- Bad credit history. Do not think that if one bank fails, you will be able to conclude an agreement in another. If you fail to comply with the conditions of the bank, you will spoil your credit history. Information about your inability to pay debts on time will be known to each bank.
The danger of an overdraft seems imaginary. Most borrowers believe that they will always be able to repay the loan on time, but in the end, sooner or later, many fall into the credit trap. In order not to stumble over pitfalls, follow simple rules:
- Remember the due date.
- One day a month, the debt on the loan should be absent.
- It is necessary to maintain the cash flow agreed with the bank on the card.
- Control the expiration date of the loan agreement.
Knowing these points will help to avoid violations and the occurrence of associated risks. But, in order to know the terms, interest and other terms of the contract, when making it, pay attention to some of its points:
- Overdraft percentage.
- Loan issuance fee.
- Overdraft fee.
- Commission for consideration of an application for connecting an option.
- Application fee and loan collateral.
- Insurance.
The contract may not include all of the costs listed above. But you need to carefully study these points when applying.
Terms of provision for bank customers
Such a loan is provided to individuals and legal entities. Phys. a person receives a loan for personal needs and can use it in any situation requiring additional funds.
Legal entities may need an overdraft in three cases:
- during the month there are cash gaps;
- the business needs a short-term loan;
- the company needs to have a "financial cushion".
The use of an overdraft gives the company ample opportunities for profit growth. If you correctly and timely introduce additional capital, you can significantly increase the turnover.
Such a scheme only works if an overdraft with a grace period is connected.
Each bank sets its own conditions for using the service. But there are general rules for concluding a contract:
- Loan terms are 1-12 months.
- It is necessary to repay the debt once a month, unless other conditions are specified in the contract.
- A current account must be opened in the bank providing the service.
- Credit and debit card turnover must be stable.
If all the conditions and nuances have been studied, then you can start connecting. To receive an overdraft, you must perform the following steps:
- Contact the bank employee who will provide the loan.
- Find out under what conditions an overdraft will be connected.
- Provide the credit department with all necessary documents.
- Waiting for activation decision.
Bank overdrafts are issued subject to the client's compliance with all necessary requirements.
Overdraft types
There are several types of overdraft, each of which differs in interest rates, payout limit, terms of provision and repayment methods. There are several main categories of this loan:
- accessible;
- technical;
- salary;
- micro;
- mortgage;
- umbrella;
- unsecured.
To choose the best option for yourself, you need to understand the difference between them. To do this, each type should be disassembled in detail.
Permitted – the standard model for all types of overdraft
An approved overdraft is a type of collateral that complies with the terms of the agreement. Such a loan is considered a classic and is issued according to all standard requirements. The limit is set in accordance with the average cash turnover on the account, and the average rate is 14.5% per annum.
Technical overdraft - what is it
Unauthorized overdraft (also called technical, unauthorized, or prohibited). The name itself suggests that the withdrawal of an amount exceeding the amount of the balance on the card occurs without the approval of the bank.
The issuance of a technical overdraft can occur for various reasons, for example, the amount for the overdraft in the amount of 1000 rubles remained on the card, you paid for the purchase in dollars, the equivalent of the balance, but while the bank transaction was taking place, the exchange rate rose, and the cost of your purchase was 1050 rubles.
It is going beyond the limit that is called an unauthorized overdraft. In this case, the client will see a red balance on his card (the amount of overspending that exceeds the limit will be highlighted in red).
Technical overdraft can be provided and unforeseen:
- Provided. Negotiated with the bank and included in the contract. When it occurs, it is necessary to quickly repay the debt with the indicated interest.
- Unintended. The occurrence of such a case is not specified in advance; in such a situation, the borrower will be fined. This possibility is provided for by the provisions of Article 395 of the Civil Code of the Russian Federation.
Regardless of the type of technical overdraft, the debt must be repaid as soon as possible, together with a fixed interest rate, which is often up to 50% per annum.
Salary overdraft
One of the classic looks. It allows you to overspend the funds of the salary card. This service is in demand, as it does not require additional registration and is often installed on the card immediately after its issuance.
The limit of such a loan is on average 50% of the amount of wages, and the period of validity of the loan agreement is not more than 12 months.
If the client needs a loan, he can withdraw funds at any ATM or pay with a card in a store. The next time the salary is credited to the account, the amount of the debt will be automatically written off and transferred to the bank.
Micro overdraft
A feature of this loan is the minimum limit of 300 thousand rubles. Such an amount is insignificant for legal entities, therefore banks consider this type of loan a micro overdraft.
Not taking into account the minimum limit, the other conditions for obtaining and repaying a loan do not differ from a classic microloan.
Overdraft secured
Every bank wants to be sure of the return of their funds. Therefore, when providing an overdraft option, a credit institution may require collateral as a guarantee of debt repayment.
The bank accepts the following types of collateral as collateral:
- real estate;
- turnover products;
- cars;
- land;
- equipment.
All other terms and conditions of the agreement correspond to the standard overdraft.
Umbrella
Designed for a network of companies. It is assumed that this will cover the cash gaps of the entire holding, which should include at least 3 companies.
The contract is drawn up for a period of up to 12 months. The service includes the following benefits:
- no commissions;
- flexibility in choosing a repayment scheme;
- the possibility of changing borrowers during the term of the contract.
The overdraft will provide the company with a "financial cushion" in critical situations.
Unsecured overdraft for a large amount
For time-tested clients, an overdraft is provided without additional collateral of property. In such a situation, the guarantee of payment is stable financial turnover on the card.
It should be borne in mind that this only works for borrowers who have been cooperating with a credit institution for more than a year.
Credit and overdraft - what's the difference
Both services give the client the opportunity to receive a cash loan for a certain period, but the conditions for obtaining a loan and its repayment are significantly different. The main differences between a loan and an overdraft are:
- Interest rate. An overdraft is issued at an average rate of 4% lower than a regular loan.
- Debt repayment period. A classic loan agreement is provided for a period of several months to several years, while overdraft debt must be repaid within 30 days from the date of receipt of the loan.
- The speed of obtaining a loan. Loan processing takes from several hours to several days. You can withdraw or pay with funds using an overdraft at any time in stores or terminals.
- Sum. A loan can be obtained in an amount several times higher than the monthly income. Overdraft has a limit that cannot exceed the average turnover of funds on your bank card.
- Debt repayment. With an overdraft, incoming funds are automatically debited from the account to pay off the debt; there is a special schedule for repaying the loan, distributing the return of the loan amount over several months.
Not all plastic card holders know what an overdraft in a bank is, and how it differs from the usual credit limit. It must be said right away that this service is available only to debit card holders, that is, customers using their own funds for debit transactions, and not borrowed ones. The service has several features, advantages and disadvantages, so it makes sense to learn more about it.
Definition
Debit card holders manage only their own funds credited to the account independently. They also include participants in payroll projects and recipients of pensions and social benefits. But in the absence of funds on the account, the bank provides the opportunity to make purchases "over the limit" or in another way "go into the red."
An overdraft is a loan provided by the issuing bank for a short period of time at a percentage specified in the agreement.
Of course, not all debit card holders can use an overdraft facility. It is available mainly to reliable and respectable customers, recipients of payments through the bank. According to the terms of the agreement, the limit of borrowed funds is limited and largely depends on the amount of funds received into the account for a certain period, respectively, it is calculated individually.
Definition
Overdraft example
To more clearly understand what an overdraft is, consider the following example. The owner of the salary card made a purchase in the amount of 5,000 rubles, despite the fact that the balance on his account was 2,000 rubles. That is, he exceeded the limit by 3,000 rubles, more precisely, he borrowed them from the bank before salary at interest. After the next payment is received, the lender will automatically write off the principal and interest for using the loan.
The difference between an overdraft and a loan
An overdraft loan is the same loan, but there are several significant differences:
- A loan is issued for debts for a period, for example, from 3 months to several years, an overdraft is repayable much earlier, its term usually does not exceed 10-15 days.
- The loan can be paid in installments, monthly equal payments, for the use of an overdraft, the fee is charged at a time, the money is debited immediately after the replenishment of the debit account.
- The interest is higher than on a consumer loan, but the total overpayment is much lower due to the short credit period.
- If the credit limit on the card can be several times higher than the user's monthly income, then the overdraft cannot be higher than the regular receipts of funds to the client's account.
- To use this service at a time, you do not need to conclude an additional agreement with the lender, you also do not need to waste time paying the debt, the bank writes off the money itself immediately after they appear on the account.
The service can be used only by those customers in the contract with which the bank provides for it.
What do you need to get an overdraft?
The bank does not offer all customers to use the service, especially new ones. When applying for a debit card, the client only needs to provide a passport and an application, and in order to use borrowed money, for example, overdraft, you need to confirm your income and its size documented.
The second way to use the service is to be a bank depositor for a certain period of time, it is usually determined by the lender. That is, conscientious and trusted clients can count on an offer to receive an overdraft on a debit card. To do this, you need to come to the bank branch and conclude an additional agreement.
Often the service is provided immediately to payroll clients., especially when all employees of one firm participate in the project. The amount of the loan will directly depend on the size of the client's salary. Here it is not necessary to conclude an additional contract, to collect income statements too.
Limit and interest
As mentioned earlier, the size of the loan depends entirely on the regularity and amount of funds received on the client's account. Although for some cards, for example, gold and platinum, and, mind you, they are not available to everyone, the overdraft can be much higher, and it is issued when the card is issued.
Carefully read the contract at the bank when opening a debit account, perhaps this service is already provided, and not on the most favorable terms.
Overdraft interest is quite high. If on a consumer loan an affordable and loyal interest is from 15% to 25% per year, then overdraft it can exceed 60% per annum. But, please note that the loan term is not more than one month, which means that the lender will take only 5% of the amount per month for its use, which is insignificant for the client.
The main criteria for an overdraft
Please note that the bank may impose sanctions in the form of fines and penalties for late payment of the debt.
By the way, the contract for the provision of a short-term loan has a fairly short term, usually 6 to 12 months. After its expiration, the client can contact the bank and conclude an agreement again. Of course, the lender can revise the terms of the service, reduce, or, conversely, increase the limit.
Advantages and disadvantages
Overdraft is a useful service for every client, because many are familiar with the situation when there is not enough money on the card to pay for the purchase. Opening an additional credit card is quite troublesome, you need to collect certificates and go to the bank, then wait a while for the card to be ready. Having the opportunity to use an overdraft, there is no need to do this.
The only drawback is that you will have to pay for unforeseen expenses at a time, that is, as soon as the account is replenished, the bank will withdraw the borrowed funds and interest. Accordingly, you will have to use the overdraft again and pay interest on it. That's why use the service carefully, this fact was noted by many users.
Unauthorized overdraft
It often happens that debit card holders are forced to pay for an overdraft, but the service is not provided for by the contract. Indeed, a technical overdraft takes place in some cases:
- when paying for goods and services in foreign currency;
- in the event of a failure in the bank's system;
- in a situation where the same payment was charged twice.
Carefully read the agreement with the bank, if it is indicated there that the provided technical overdraft must be paid within a few days, then the client is required to do so because he himself agreed to this condition by signing the agreement.
If the technical overdraft is not provided, then the creditor has the right to demand funds from the cardholder to pay the debt, plus interest, fines and penalties in case of late payment. This is regulated at the legislative level in Art. 1107 p.2 of the Civil Code of the Russian Federation.
We can conclude that both the bank and the client benefit from such a service as an overdraft, that this offer can save the card user from issuing a credit card. On the other hand, it must be remembered that this is the same loan, albeit a short-term one, it must be repaid within the terms established by the agreement and interest must be paid on it.
What is an overdraft and who is eligible for this loan product? Most Russians are already familiar with the concept of lending, but its varieties in most cases mislead customers. An overdraft or overdraft is a short-term loan by which a client can borrow from a bank an amount up to a set limit.
What does overdraft mean
Imagine that a week before payday there was a need to make a major purchase. There are not enough funds on the card, you need to purchase the goods now. Bank customers using the overdraft service do not worry about the account balance: they have the right to regularly go into the negative on the account, while not exceeding the specified limit. With each receipt of funds on the card, this minus is automatically eliminated, taking into account the established percentage, and if the debt is returned on time, without it at all.
Overdraft types
This type of short-term loan is divided into two categories: authorized and unauthorized. In the first case, the client uses a bank-approved loan within the agreed limit, acting within the law. An unauthorized overdraft mainly arises through the fault of the bank or due to the peculiarities of the functioning of the financial market. Its cause may be:
- unstable exchange rate
- low speed of transactions within the bank;
- banking system problems.
Legislation
Overdraft is regulated by the “Account Lending” described in the Civil Code of the Russian Federation.
Pros and cons of an overdraft
For those who have ever dealt with the lending system in Russia, the ability to regularly borrow money from a bank without unnecessary formalities seems very attractive. This type of short-term loan is distinguished by volume privileges based on the ability to freely dispose of those funds that have not actually been earned yet.
Advantages of an overdraft
- round the clock instant loans;
- lack of paperwork;
- automatic debt repayment;
- fixed interest rate.
Connected service overdraft on the card makes it possible to make unplanned purchases around the clock, without looking at the account balance. You also do not have to think about coming to the bank to pay off the debt on time: with each receipt of funds on the card, the debt will automatically decrease.
Cons of an overdraft
The only drawback of this type of lending is the interest rate. Most banks set it higher than for a long-term loan. In the case of using the overdraft service, the loan amounts are not too large, which means that the overpayment in terms of rubles will not hit the budget. If the client's credit history turns out to be perfect, the bank goes to a meeting and offers to borrow funds without overpayments. As a rule, such a loan is repayable within one month.
To activate this service, the client submits an application to the bank. Overdraft is available for both credit and debit card holders. In the process of considering the application, employees are guided by four basic indicators:
- stable receipt of funds to the account;
- registration of the client in the region where the card was received;
- lack of debts on loans;
- solvency.
These requirements are similar to those that the bank puts forward for issuing a loan. The difference is that the overdraft service is activated once. After that, you get the opportunity to regularly borrow amounts within the established limit.
What is the difference between a loan and an overdraft?
The only similarity between an overdraft and a loan is that the client borrows funds from the bank. On closer inspection, these services have four important differences:
- overdraft repayment period is not more than two years with payment of an interest rate or one - two months without overpayments;
- the permitted amount of a short-term loan is calculated depending on the monthly income and does not exceed 150% of regular income;
- overdraft debt is repaid automatically: in one payment after the receipt of funds on the card;
- instant transfer of funds when receiving a short-term loan.
Overdraft limit
After the bank makes a positive decision to connect the service, you should set the interest rate, payment terms and the upper threshold for the amount of debt. The overdraft limit depends mainly on the amount received monthly on the client's account: the greater the income, the more funds the bank is willing to lend. In a situation of economic crisis, the loan officer takes into account the specific situation in the country and lowers the threshold.
The value of the limit remains unchanged for six months, in some organizations - twelve months. During this time, the financial situation of the client changes, and the limit is subject to recalculation.
Another similarity between a loan and an overdraft is the risk of falling into debt. Uncontrolled debiting of funds without formalities threatens with the final loss of control over the amount of expenses. It is worth treating the connection of the overdraft service with a card wisely: in this case, it will allow you to feel more confident and make large purchases even on the last day before salary.
I will be happy to answer all questions in the comments to the article.
Information about what an overdraft is can be useful in case of an urgent need to receive funds. At some points, on the contrary, this function creates some interference. If there is no need for additional foreign exchange resources, the salary card holder needs to constantly maintain a certain limit on it. When 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 bank's overdraft service, often offered to individuals and legal entities, is a lending program with special individual conditions. Its features are as follows:
- transfer of funds to the client's current account;
- the write-off of the amount of debt occurs regardless of the balance of funds;
- the overdraft interest rate is regulated by the bank - it may be absent, charged 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 card?
Overdraft cards are widely used. In most cases, they are assigned to the client's current account, to which he receives a salary or to a deposit account. How an overdraft works - the bank transfers to the client's account the amount specified in the contract, which will be at his disposal for a certain period.
At the end of this period, the client is obliged to pay the spent funds and interest, depending on the terms of the contract. If the client does not require additional funds, he may not spend them, maintaining the overdraft limit, or refuse such a service. At the same time, you need to remember how much you need to leave on the card - this is one of the disadvantages of such a banking product.
What is a Permitted Overdraft?
As a rule, the available overdraft is calculated depending on the income received on the client's current account. Sometimes such a service can be automatically included in the client's payroll project. Employment certificate can serve as proof of income. To apply for an overdraft, additional information may be required:
- permanent registration;
- proof 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. Limit - 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 certain percentage of the amount of money in the current account and their turnover. An additional condition for using the available overdraft may be a decrease in the limit when withdrawing money and increasing it when replenishing an account.
How is an overdraft different from a loan?
Regardless of one function - the issuance of funds for the use of customers and their subsequent return with and without interest, the difference between an overdraft and a loan still exists. The following distinguishing features can be distinguished:
- As a rule, a loan provides funds at a fixed interest rate specified in the agreement, and an overdraft - without it in case of timely repayment of money. If the overdraft payment is overdue, then the interest on it can be much more than the overpayment on the credit line.
- An overdraft, as a rule, does not require confirmation of income, but also provides a much smaller amount for use than a loan.
- The amount of the loan depends on the solvency of the client, and the amount of the overdraft depends on the wages coming to a particular account or the amount of money turnover on it.
Why is overdraft dangerous for individuals?
Having access to a certain amount of money, a person can forget about repaying a debt to a bank. This is called a technical overdraft - debt when paying cash. In most cases, it appears when the available limit under the overdraft agreement is overdrawn. In this situation, in addition to the main overpayment under the contract, interest may be charged for late payment, which is several times greater than the amount spent.
There are cases when a client accidentally withdraws from the account a larger than usual amount, which includes funds provided by the bank. As a result of such actions, it is possible to get into a mess and pay an extra amount. Sometimes, when a new card is issued, an overdraft service is automatically connected to it, and if the client does not know about it, he can overpay a considerable amount of interest. Therefore, it is important to check all the services assigned to a bank card. Taking an overdraft and forgetting about the requirement to maintain a limit on the account is a big danger for the client.
How to connect an overdraft?
Having understood the essence of an overdraft, the client decides whether he needs such a program or not. In case of a positive answer, you should contact the bank branch to conclude an agreement. The procedure for connecting an overdraft may vary for each bank. In some cases, it connects automatically. The available limit is calculated in a similar way - depending on the monthly income and the turnover of funds in the account.
In most cases, only an identity document is enough, but the client may need some papers:
- job references;
- confirmation of income;
- account statements.
How to disable overdraft?
If there is no need, the overdraft service can be disabled. To do this, you should contact the bank to terminate the contract. One of the conditions for such an action will be the absence of debt under this program. Different financial institutions have different conditions for providing such a financial product. They must be spelled out in the contract. If there is a condition that it is impossible to disable the overdraft, then when signing the agreement, you can specify a zero limit for the provision of funds.
It does not matter what the client chooses - a loan or an overdraft program, it must be taken into account that both banking products are associated with a financial burden. Interest on the use of bank funds and the conditions for their accrual may vary, therefore, no matter how tempting the offer may be, it is important to remember what an overdraft is and what financial risks it may be associated with.