Set up an overdraft facility and use it immediately - Everything you need to know about your overdraft facility and possible alternatives
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What is an overdraft facility?
With an overdraft facility, you can overdraw your account up to a certain limit. This means you can withdraw more money than is available in your account. The overdraft limit - also known as an overdraft facility or overdraft facility for short - is agreed individually with your bank. The use of the limit is completely flexible, you can overdraw your account at any time up to the approved limit.
How does the overdraft facility work?
If you want to borrow money at short notice that you can pay back promptly, an overdraft facility at the bank is often suitable. This is how your overdraft facility is handled:
Setting up the credit limit: Depending on your incoming salary and your credit rating, the bank will set a maximum credit amount with which you can overdraw your account.
Access: You can easily access your frame flexibly via your account from the time the setup is completed.
Interest: You usually pay the interest quarterly or monthly and it is automatically debited from your account. The interest is usually higher than that of a traditional bank loan.
Repayment: As soon as you have money available, you can balance your account again. Incoming salaries or other cash flows will reduce your deficit again.
Adjustment: If your income situation or creditworthiness changes, the bank can adjust or cancel your credit line at any time.
How is the overdraft limit calculated?
Before a bank grants you an overdraft facility, it usually carries out various checks:
The system checks whether you receive a regular salary or other payments. The available monthly income serves as the basis for the calculation, as you can use it to repay the overdrawn amount.
Your previous account management, such as the frequency and amount of overdrafts and other account transactions, is also taken into account.
A credit check is carried out by a credit agency such as Schufa.
The bank also takes into account collateral such as real estate or securities or other financial obligations.
What requirements must I fulfill?
In order to obtain an overdraft facility from the bank, you generally have to meet the following requirements:
Age of majority
Current account with the bank
Regular income
Positive credit rating
Residence in the country of the bank
Sufficient creditworthiness
Of course, the requirements can vary from bank to bank. In most cases, however, the points listed are a good guide.
Can I set up my own overdraft facility?
As a rule, you contact your bank with a request to set up an overdraft facility. Your financial situation will then be checked and, if approved, you will receive a confirmation with all the information about the conditions.
Although many banks give you the option of requesting an overdraft facility via the app, this is usually still approved by a bank employee after verification.
What can I find on the overdraft facility statement?
Your overdraft limit is usually shown directly on your current account. There you will find the following information about your limit:
Available balance & available frame (This is how much money you have at your disposal.)
Utilized overdraft limit (You have overdrawn your account with this amount.)
Interest for the overdraft
Inputs and outputs
Fees
Date & period
Interest rate
Can I change my overdraft limit?
Yes, this is possible as long as you meet the requirements for the amount of the credit line. In addition, a change is dependent on a commitment from the bank.
First, your financial situation will be reassessed. If, for example, you have a higher regular income than when the original credit line was set up, this is a good argument for increasing your credit line.
What conditions should I expect?
You can expect the following conditions from most banks:
Interest and interest rates:
As a rule, overdraft facilities or overdraft facilities have a variable interest rate that is higher than for other types of consumer credit. Interest rates are often between 6% and 13% p.a., but can also vary from bank to bank. The interest rate is always calculated on the amount overdrawn. It can change as soon as the central bank adjusts the prime rate or if market conditions change.
Interest is usually debited monthly or quarterly and is calculated on the amount you draw down each day. If you are unable to pay the interest immediately, compound interest may also accrue. This also increases the usage costs of your overdraft facility.
Overdraft limits:
The amount of the overdraft facility always depends on your regular income and your credit rating. In most cases, you can get a limit of three monthly net incomes. Other factors also play a role, such as your customer relationship with the bank, your general financial situation and your creditworthiness.
Repayment modalities:
You can arrange the repayment of your overdraft facility flexibly. There are no fixed dates and it is usually settled through incoming salaries or other income. However, banks always reserve the right to adjust your limit if your financial situation changes.
What do I have to watch out for? What are the risks?
Compare or negotiate conditions: It is always important to compare the conditions of different banks. In some cases, however, you can also renegotiate - for example, if you have been a customer for many years or have a very good credit rating. Make sure you always keep an eye on your interest rate, as this can also change.
Short-term bridging: In general, you should only use an overdraft facility for short-term bottlenecks, as the interest rates are usually much higher than with other forms of bank credit. If you are unable to pay your interest regularly, you may also incur compound interest payments. This increases the total cost of your overdraft facility once again.
Debt risk: Due to the easy availability, you can quickly fall into the debt trap. Long-term use of the overdraft facility makes it difficult to get out of it without taking additional measures.
Credit score: If you use your overdraft facility frequently and for a long time, this can have a negative impact on your credit score. This can also affect future credit applications.
Adjustments: Banks have the option to reduce or cancel your line at any time. The interest rates and fees can also be adjusted individually by the bank. If your overdraft facility is terminated, this can lead to payment difficulties.
Advantages and disadvantages
There are advantages and disadvantages to setting up an overdraft facility. We have compared these to give you a better overview:
ADVANTAGES | DISADVANTAGES |
|---|---|
Flexibility in repayment | Higher interest rates than other bank loans |
Uncomplicated and fast availability | Debt risk |
No fixed repayment plans | Negative impact on your credit rating |
Not earmarked | Adjustment risk |
When can the bank cancel the overdraft facility?
The bank always reserves the right to reduce or cancel your overdraft facility. There can be various reasons for this, for example
Your credit rating has deteriorated.
Your income has decreased.
Your frame is always used to the maximum.
The bank guidelines have changed.
Your payments can no longer be settled.
What can I do if the bank cancels my frame?
It is best to communicate directly with your bank and find out what led to your credit line being canceled. Actively suggest how you can improve your financial situation or credit rating. You can discuss possible solutions with your bank advisor.
Find out about alternative financing options. We will give you a few examples below:
Pawn loans:
For a pawn loan, you deposit collateral and can borrow money in return. Your credit rating or financial situation are irrelevant. One advantage is that you don't build up any more debt, because in the worst case scenario, all you have to do is sell your collateral. However, your debt is then settled.
Pawn loans, like overdraft facilities, are suitable for short-term financial bottlenecks. You do not need a regular income or a good credit rating.
Consumer loans (installment loans):
With a consumer loan, you usually have to specify a purpose (for example, buying furniture). There are fixed terms and interest rates.
You can also take out a consumer loan or installment loan for a longer term. It is cheaper than an overdraft facility, but you need a medium to good credit rating and a regular income.
Instant loans
Instant loans are usually offered with fast pay out. Up to a certain amount, proof of income is often not required, but in most cases your credit rating is checked automatically.
An instant loan is suitable for you if you have a good credit rating.
Car leasing
With car leasing, you pay a monthly installment and can use a car for an agreed period of time.
If you want to finance a car, this type of loan would be a good option for you. However, if you own a car and need the money for another purchase, a car loan might be a better alternative.
The most important questions & answers
What is an overdraft facility?
An overdraft facility is also known as an overdraft facility or "Dispo" for short. The bank allows you to overdraw your current account up to a certain limit.
Can I withdraw money from my account even if I am already in the red?
Yes, if you have been granted an overdraft facility, you can withdraw money from your account up to this limit.
Can I set up my own overdraft facility?
No, the bank must always give its consent.
What alternatives are there to an overdraft facility?
If you need money urgently, an instant loan, consumer loan or pawn loan could also be a good solution for you.