Borrowing is cheaper than overdraft
There are many misunderstandings about the overdraft on the current account. The overdraft on the current account is generally reasonably accepted. Most consumers believe that being in the red on their checking account is an advantageous form of borrowing money. Is this correct? Or is the statement correct: "borrowing is cheaper than being in the red".
Costs in overdraft
Many consumers believe that being in the red on their checking account is not really a loan. In practice this is different. Being in the red on the current account is also a form of borrowing money . You use money that you don't have. In this case, the money belongs to the bank where your checking account is held. You must also pay interest on this. The amount you have to pay is generally not very high. But the interest does. Because you have only borrowed a small amount (usually up to a maximum of $ 2,000.00, you will not notice much of the interest. If you look into this, you will soon notice that the interest is often close to the maximum legal interest. of no less than 14% Another disadvantage of being overdrawn on the current account is that it is tempting to make withdrawals from your loan, so that you will pay even more interest than is actually necessary.
Costs of an “ordinary loan”
Just as with the overdraft on your current account, costs will of course also be charged for a “normal loan”. If you have a revolving credit or a personal loan, you must of course simply pay interest on this.
The difference is only the amount of the interest. With a revolving credit or a personal loan you pay a much lower interest rate.
In addition, with a normal loan you also have the advantage that the withdrawal is slightly more difficult. You have more time to think, and therefore less chance of making unnecessary or too expensive expenses.
By also keeping your loan as a separate loan, you are more likely to repay your loan. And that can save you a significant amount of interest.
Pitfalls in the red
From the above, you can already somewhat deduce what the main pitfalls are when you are overdrawn. Despite these pitfalls, it is still one of the most popular forms of borrowing money. Unfortunately, this is probably largely because there is little interest in making overdrafts cheaper. The benches are of course the laughing third. They enjoy a substantial income stream due to this high interest rate.
Briefly at a glance:
- Interest often rising to no less than 14%
- Too easy to make withdrawals from your loan
- Unnoticed, being in the red remains a habit.
Merge your loans
It is important to gain insight in resolving obligations such as credit cards, loans and other expensive forms of credit. Most consumers experience it as confronting, but it is good to look this up. Take an hour to compare your accounts. The statements of your loans, your credit card (s), but also the overdrafts on the checking account. And the payment arrangement at Wehkamp. The latter is also simply a loan.
If you know what you have outstanding loans, you can also easily check what your (too) expensive loans are and what your advantageous loans are. After that, bundling can begin. Combine all overpriced loans into one responsible loan, with low interest rates and good conditions. You will soon find that this can save you a lot of money.
At 2Fast4Paws , we are of course happy to help you gain a good insight into your financial situation.