An overdraft, which we call an overdraft for short, is a type of non-purpose and unsecured loan. Banks provide it in addition to a current account, which can go into a negative balance thanks to an overdraft. At any time and repeatedly. The maximum amount the bank will lend you is agreed in the contract and, as with other loans, you have a set date to repay it.
What is an overdraft for?
An overdraft is a short-term loan; you must repay the borrowed funds to the bank within the agreed term, but within a maximum of one year. Some banks put a shorter period in the contract, so always read the contract carefully. You should also ask about the interest rate, because with an overdraft you have to expect high interest rates.
- The overdraft is mainly used as a reserve for unexpected expenses.
- It can be recurring, so when you repay the amount borrowed, you can draw on it again. And without prior application and approval.í.
- It strengthens your payment capabilities and allows you to send a regular payment even when your account is underfunded for any reason. For example, when a payday is delayed but a direct debit has to go out on a predetermined date.
Did you know that with an overdraft you only pay interest for the time you are in the red? If you don’t use the overdraft, you don’t pay any interest. You just have the money available “for Uncle Story”.