December 22, 2018

Replacement of an emergency loan – you should pay attention

The credit line, which is also called “current account credit”, is very popular with millions of bank customers. The credit line should give the consumer flexibility and, for example, serve to bridge short-term bottlenecks. But how long should one use a credit line? When should one deal with the replacement of an emergency loan? The following article deals with the topic “Disbursing credit facilities”, including the disadvantages of the disbursement credit.

What is meant by a “credit line”?

In the banking jargon, the term ” credit overdraft” is understood to mean an amount agreed with the bank (disposition framework), which allows the bank customer to independently manage his checking account up to a certain amount. The overdraft resulting from the use of the account is agreed with the bank, which is why the bank customer can always plan with his disposition framework. Compared to a normal overdraft, which arises from the bank-side goodwill, disbursements have significantly lower interest rates. For this purpose, bank customers can use their disposition framework through incoming direct debits, outgoing bank transfer and withdrawals at the ATM. The usual account overdraft, however, can only be done with incoming direct debits, which are booked despite missing cover from the bank.

When is the replacement of an MRP loan useful?

The bank defines a credit line as short-term, granted overdraft facility. This means that as a consumer you should in any case deal with a loan repayment if you are in the overdraft facility for an extended period of time. Although it is fundamentally impossible to define how long this period should be, banks are required by current guidelines to speak regularly with customers who have taken their overdraft facility for more than three months. The banks must actively offer a rescheduling of the disbursement credit, since the interest rates on the disbursements are still very high (on average around 10.00% pa). If, as a consumer, you realize that you have been using your credit line for more than a month and feel that you will not be able to settle the next salary payment, you should also turn to the account-managing bank or another bank.

The disadvantages of an emergency loan

Even though the credit line has some advantages and, above all, provides flexibility and freedom – of course it also has its “downsides”. First of all, in the banking world with the unregulated overdraft, there is only one service that is even more expensive than using a disposition credit. Despite the current period of low interest rates, the conditions for a credit line are still at 4.50% to 15.00%, with the majority of banks offering a credit line for an average of 10.00%. With larger disposition frames of, for example, 5,000.00 euros and a claim of several months incurred, especially in relation to the loan amount insanely high costs. Since most bank customers can get a personal loan with a fixed interest rate for about 5.00 to 7.00%, the replacement of a credit line is definitely worth the cost.

In addition, the permanent exhaustion of a disposition framework, including with regard to the credit rating of the Private Loan, ensures dangers. Banks must pass on the existence as well as the use of credit lines to the Private Loan, which processes these within the scope of the scoring procedure. In this context, a permanent use of the MRP has an impact on the probability of default and should therefore be avoided, even in view of the Private Loan assessment. Moreover, it is ultimately the case that there is no regular repayment at a disposition. For example, if a consumer has fully exhausted a € 2,000.00 credit line, this amount will always be reduced in full on the amounts received when making a cash inflow. If a consumer, for example, has a monthly income of 1,800.00 euros, he would stand after the salary payment at -200.00 euros. After that, the bank customer still has the full month with his fixed and living costs in front of him. It can therefore happen quickly that at the end of the month he had to reclaim the full 2,000 euros of his emergency loan.

Compared to the regular repayment of a fixed and matching amount of credit, bank customers with no special payments or due dates usually have difficulty withdrawing from a used dispo.

Replacing the credit line – that’s the way it works

If a credit line is to be replaced, then consumers simply have to take care of the acceptance of a private or consumer credit, which is included in the respective amount for replacement. Depending on the size of the disposition framework, such loans are often in the “small credit range” (for example, 800.00, 1,000.00 or 2,000.00 euros). This ensures that the criteria for granting loans are generally easy to fulfill, which is why such a repayment credit can often be applied for on the “short service route”. On the one hand, consumers can, of course, turn to the giro-account-managing bank for the redemption of an out-of-pocket credit, on the other hand, of course, they can also be requested from external banks (for example, direct banks or online credit intermediaries) for the desired replacement. As criteria for the granting of credit, persons of legal age, natural persons, as a rule, must submit their ID card, proof of the amount of the transfer fee and proof of income from the last three months. The minimum repayment rate required by the Bank for a Severance Credit is calculated as a function of the term chosen and can therefore generally be freely designed. As far as conditions are concerned, consumers should definitely seek different offers and compare interest rates.

Conducting an online loan comparison can help and above all saves a lot of time. For this you should definitely pay attention to whether the credit offers under certain circumstances residual credit insurance or similar additional products are, which you as a customer may not want to complete. A quick glance at the interest rate is not enough in this respect to compare offers for the replacement of a credit line with each other.

Conclusion: Even if disbursements generally provide flexibility and are often used by many consumers – as soon as you realize as a customer that you are in the long term in the Dispo and can not leave this on the next salary payment, you should ask for the replacement of the disbursement To take care of. Due to various guidelines, the banks are now also obliged to actively approach bank customers who have been using their disposition framework for some time. This is due to the high costs of an emergency loan as well as to negative effects on the Private Loan, which can arise in the event of permanent use of the POS. The replacement by a private or consumer loan not only ensures savings in interest rates, but also significantly helps with the systematic repayment of the claiming disbursement amount due to the fixed repayment rate.