All-natural and legal persons, the bank account, can optionally issue a loan in the form of overdrafts. The word “credit” is understandable even for a student today, but not everyone knows what it means for an overdraft account and why it cannot be called a credit.
Why open overdrafts?
If you need to close a gap in your sales revenue, it is possible not to give a bank loan with high-interest rates, but an overdraft. Suppose you have a bank account and use it not only for profit but also to deduct certain amounts from the customer. At some point, the required amount was not in the account and you have to transfer money as soon as possible.
The money in your account should be received in one day, but the customer cannot wait. In order to transfer money urgently to the customer, an overdraft card is used. This type of loan should not be confused with a loan or other financial transactions. When registering, a certain type of card is issued – overdraft credit.
Examples and specific numbers
To clarify the term ” overdraft card” what is it, here is a concrete example with numbers that you can use to understand how this type of loan works.
In the morning on the balance of the entrepreneur 10,000 USD. On that day, he goes to the bank and signs an agreement to open an overdraft limit of 1,000,000 USD. The entrepreneur gives the bank an order worth 100,000 USD on the paper backing.
The bank transfers the required money to the counterparty, including through an overdraft facility. It turns out that an overdraft company owes the bank 90,000 USD, but he still has 910,000 USD in limit that he can use if necessary.
Suppose the next day in the account, the entrepreneur receives an amount of 120,000 (for example, the counterparty transferred the money). The overdraft is repaid and the free limit of funds that an entrepreneur can use is restored. It turns out that the next day the amount of 1,000,000 USD is available to him again. Here’s a hand-painted example that shows the essence of what an overdraft card is.
For what purposes can you spend the money limit issued by the bank?
Almost every bank has control over the cash it lends to a legal or natural person. If the borrower has his own business, overdrafts are used to pay bills, pay wages, taxes, advance payments for work, pay off loans and so on.
The bank will not allow you to use the cash limit if you forget to pay taxes or credits and a penalty has already been paid. If the borrower has such a case, the bank will not even allow him to purchase long-term assets through overdrafts.
Force majeure or overdraft
It is impossible to predict what will happen tomorrow, go business. If you haven’t calculated your options and the required amount of money has not been deposited into your bank account, this is not the worst, provided the bank credit limit has not been affected. Overdraft Card – What About Bank Debt?
If you still use this loan view and the money has not arrived in the bank before the date agreed in the agreement, payment can be made in cash to the bank. If the borrower has a second account that is constantly receiving money, you can transfer it to the account that has an overdraft. All transactions take place within one working day.
When signing the contract, you should be clear The date by which funds must be paid is indicated. This is usually the 30th day after the credit limit is opened. Some banks ask you to pay the debt by the 20th of each month regardless of when the limit was opened.
Under what conditions can I open an overdraft card?
Applying for a bank loan to a borrower Often you need to have a number of certificates and documents that confirm your solvency. If a large amount of money is needed, the guarantors can also ask. Fine Bank Visa Classic overdraft card provided without collateral property. It is sufficient if the bank shows your monthly cash receipts in the account. Based on the number of bar revolutions, it is decided how much to overdraw. It cannot be ruled out that the creditor will ask for guarantors. This can be the company’s general manager, the owner, the co-owner, and others related to your type of activity.
Who can be denied cash?
Overdraft card – what is it, is it given to everyone? It seems that if there is an account that regularly receives a certain amount of money, why should the bank refuse to issue an overdraft loan? It turns out that using an account is not enough, but you must have a positive credit history.
Before making a decision, the bank does not check an applicant, but the entire company. If he has the impression that it will be liquidated or generate no income in a few months, the loan will most likely be declined. In addition, at least three months of sales should be in the applicant’s bank account.
Although the last time every bank called was right from your point of view. There are cases like this: An important customer applied for a bank overdraft facility that had recently opened an account with this bank but has had accounts with other financial organizations for many years.
The bank can apply to those organizations that generate customer money sales and make a decision about the credit limit based on this information. When considering an application, they are interested not only in the monthly amount credited to the account but also in how often the money is in circulation.
Term of the overdraft agreement
If the borrower’s result is positive, a contract is concluded for 180 days or longer. The account amount must be replenished every 30 days to cover the overdraft debt. Upon full repayment of the liabilities to the bank, the borrower has the right to terminate the contract. It is also allowed to make a new agreement after 180 days.
The interest for such an agreement was always lower than for a bank loan. The conditions for providing overdrafts are far more loyal, as interest in using funds only applies to the balance of the debt at the end of the working day.
In the event of default, the bank has the right to get your money in the shortest possible time, and if you have such a situation, you are guaranteed a blacklist and poor creditworthiness. Current account credits are granted to a borrower and a bank in one currency.
Overdraft card – what is it for the borrower: benefit or debt gap? Often, a person cannot plan their expenses, and when they get a salary, they start buying a lot of unnecessary things. At the last moment, he remembers that the most important thing was not acquired and that not all payments were made on time. You can ask relatives and friends for help, but not everyone has friends who can freely lend the required amount of money for several weeks.
Not everyone likes to borrow money. Many are based on the following principle: If you want someone to leave your life, borrow their money. Why test the theory in practice, it is better to simply deny the debt, citing difficult financial times. Why take a detour when you can borrow from the bank for the same weeks and even at low-interest rates?
Overdrafts as a type of loan
What does an overdraft card mean? This sentence from English translates as a “super account”. Worldwide, this service is gaining popularity every year, not only among business people but also among the normal working class. You can independently calculate what limit the bank can open for you if the application is approved.
The overdraft amount must not exceed the average salary of the applicant for three months. If the contributions are regular in nature, the customer can withdraw money from the account until the contract expires.