Overdraft - what is it: money in debt or credit?

Everyone tries to keep records of their own funds. Successfully he has it or not, depends on worldly wisdom, the ability to anticipate the development of events and financial intuition. At the same time it is difficult to find a person who does not have to borrow money. The need to find a source of funds among friends and relatives, as well as the need for explanations, disappears if you have an overdraft. What it is? Is it different from the loan? Knowing the answer to these questions will increase financial self-confidence and economic literacy. This and do.

By sounding so similar to the German word "overdraft" in fact - tracing from English, and it means "short-term credit". It is provided to the most reliable clients of the bank in the amount of the previously agreed amount.

Hence, legitimate questions follow, provided that you agree to take overdraft. What kind of loan is this? What are its conditions? Is it profitable? What is the difference between a credit overdraft and a credit card?

In the banking sense, an overdraft is not even a loan. This is an opportunity for the cardholder to borrow from the bank some cash, conditioned by the limits of the limit, until the next salary is calculated.

The unused amount of the overdraft is always on the holder's bank card. Of course, borrowing funds is not costly. Debt payment is red, and with a certain percentage of the contract. Usually it is much higher than the loans that are usual for our understanding.

Another difference - the repayment of the debt is made by a single (together with the interest) amount at the time of receipt of the next salary on the card. Whereas credit card debt is usually divided into a series of equal interest-free payments in a specified time period.

Most often, the amount of the overdraft of a debit card depends on the size of the average monthly enrollments and usually does not exceed this individual number for each owner. Thus, the nearest receipt of funds completely repays the debt to the bank.

Please note that the owner of an ordinary, non-credit card can easily become a borrower by accident. For example, if the payroll is delayed, and the client, not knowing about it, makes the necessary purchases, calculated by the funds provided under the overdraft agreement. That this acquisition cost more than suggested, the cardholder can find out only a month later.

Calculation of the same credit card a priori can not be accidental for the client.

The most serious drawback of an overdraft is a credit trap. Very often a person does not fit into the amount allocated by wages. Having scraped overdraft funds once, subsequently does not manage to pay off the debt on time. This amount of debt goes from month to month, leaving the bank with the due interest.

If you decide, when you learn everything about the overdraft, that this offer of the bank is unprofitable for you, just give it up. But there are force majeure circumstances when it is very necessary. Just know about the "pitfalls" of the overdraft and use it wisely.