Overdraft credit is Overdraft conditions for legal entities

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Banks offer their customers a large number of different services and programs. An interesting type of loan is an overdraft. It is offered to individuals and business owners. An overdraft loan is a unique opportunity to spend more money than you have on your account or card. Borrowed funds are issued for a short period of time, so the first time funds are received into the account, the debt is repaid. Citizens or owners of different companies can activate this service, and sometimes banks activate it automatically when issuing a card or opening an account.

The concept of overdraft

Overdraft loan is an unusual loan option, which consists in the ability to overspend the funds available on the account. If a person does not have the necessary amount of funds to make a large purchase, he can still pay for the purchase, as the bank will automatically provide the required amount on credit. There is no need to apply and wait for loan approval.

Overdraft - what is it in simple terms? It is a kind of loan, but forTo obtain borrowed funds, you do not need to visit a bank branch and leave an application. A small amount of funds is issued on credit if you need to make any large purchase. Upon approval of such a service, the conditions for obtaining borrowed funds are negotiated with the bank. To do this, the maximum loan amount, interest accrued, the duration of the interest-free period, the repayment period and possible fines and pen alties withdrawn in the event of a delay are determined.

Usually people use an overdraft when there is a sharp need for a certain amount of funds. For example, if there was not enough own money before the salary. With the help of such a bank offer, you can make large purchases for which it is impossible to raise your funds. But at the same time, an overdraft loan is not a regular loan, so it has some differences from credit cards and consumer loans.

Features of the service

Overdraft features include the following:

• it is offered not only for credit cards, but also for debit cards;
• issued exclusively on cards that regularly receive payments, so salary cards are usually chosen for this purpose, since in this case the bank is sure that the overdraft will be promptly repaid;
• sometimes it connects for a credit card, which allows you to slightly go beyond the existing limit;
• loan funds are issued for just a few months;
• the amount that the cardholder can use is strictly limited;
• most oftenbanks offer an interest-free period of 30 days, so if during this time the borrower returns the funds used, he will not have to pay interest to the bank.

Overdraft - what is it in simple terms? It is an unusual type of loan, and it is offered to both legal entities and individuals. To clarify all the features and conditions for its use, it is advisable to contact the bank where the account is opened.

Pros of using

An overdraft debit card has some positive features for the owner. Key benefits include:

• you don't need to apply for a credit card or apply for a loan to get a loan amount;
• this service is activated only once, after which you can use the bank's borrowed funds repeatedly during the entire validity period of the card;
• no need to worry about paying off the debt to the bank, because the first time the money is credited to the account, the debt will be automatically repaid;
• overpayment on such a loan is considered low, since the loan term usually does not exceed two months.

Therefore, many people positively perceive the connection of this service to their card.

Flaws

An overdraft loan is a simple loan that can be obtained without first sending an application to the bank. Although it has many advantages, it also has some significant disadvantages. Toincludes:

• the contract is concluded only for the validity period of the card, after which you will have to re-register the service for a new plastic;
• The interest rate is considered high compared to conventional loans;
• repay the debt within a short period of time;
• debt is repaid in full, not in installments;
• often banks use various hidden commissions and payments that customers do not even know about, so you have to carefully study the contract;
• banks unilaterally have the right to change the interest rate or maturity of the loan;
• some people don't even know that an overdraft is connected to their card, so if they handle the card carelessly, they may experience delays;
• Such unusual banking offers often cause people to fall into the credit trap.

Therefore, before signing an overdraft agreement, one should evaluate not only its advantages, but also its disadvantages. Often people refuse such a service because they are afraid that they will constantly experience cost overruns.

Types of overdraft

There are several types of overdrafts. These include:

• Allowed. To connect it, the cardholder independently draws up an application, which he submits to the bank. Based on this application, this service is connected to his payment instrument. The size of the limit depends on the financial condition and official earnings of the bank client. Overdraft applicationcan be submitted when visiting a bank branch or through its official website.
• Unresolved. It is called technical in another way, as it is connected automatically by the bank. Sometimes cardholders are not even notified that they have been connected to an additional free service. In some situations, this is due to technical errors or changes in the exchange rate.
• Unsecured. The client does not require any documents or collateral. Funds are issued for a short period of time, and the proposed limit is considered low.
• Secured. It is usually issued by companies that regularly use this type of loan. To do this, it is important to prepare a lot of documents and confirm your ability to pay.

Additionally, overdraft differs depending on the recipient of the service, as it can be offered to individuals or companies.

Terms of Service

Overdraft conditions for legal entities and individuals are completely different. The requirements for citizens are:

• the presence of a permanent residence permit in the region where there is a bank branch;
• good credit history;
• presence of a permanent place of employment;
• good salary;
• no other loans.

For legal entities, the conditions are slightly different. It is usually required that the firm has been operating for at least a year, and also the results of its activities must be positive. The size of the limit is affected by different parameters, sothe bank necessarily evaluates transactions on accounts and cards held by the business owner.

How is it done?

It is quite simple to issue an overdraft, so if a person wants to use such an unusual banking service, then the following steps are performed:

• gathering documents confirming that the bank's client meets the numerous requirements of this institution;
• an application is submitted, for which you can come to a bank branch or use a special electronic form on the organization's website;
• you need to apply to a bank that has a debit card or a deposit for a large amount of funds;
• if the bank where a person is a regular customer does not offer an overdraft, then any citizen can transfer his salary to another credit institution where this function is available;
• Based on the application, the bank decides to connect an overdraft facility;
• citizen must come to the branch on his own to get information about the loan limit, and whether an interest-free period is offered.

When making an application, you can specify what limit the bank's client is counting on.

Features for companies

Many banks offer overdraft for legal entities. persons. Features of this unusual loan include:

• a company that relies on this service must have a bank account;
• employees of a banking institution pre-check all transactions carried out on the account, as well asevaluate the financial condition of the company, since only if there is a good income, this type of loan is offered;
• the account must have a regular cash flow;
• in addition, the bank takes into account the scope of the borrower's activity, since if it is risky, then organizations usually refuse to connect additional specific services.

The disadvantages of this offer include the fact that companies are charged a commission for each tranche. The amount of the fee must be clarified directly with the bank employees. Additionally, for the entire period of the overdraft for a business, certain requirements for the turnover of funds are established. If they are violated, the bank can disable this service at any time, so if the company needs borrowed funds, you will have to apply for a loan in the standard way.

What is dangerous for individuals?

For citizens, connecting an overdraft facility is not considered a very pleasant event, as it often causes overspending and debts. Since people are confident that they can use the borrowed amount of funds at any time, they become more free with their funds, so they often spend too much money that they cannot return in a timely manner.

The repayment of the overdraft is carried out automatically, so immediately after receiving the salary, a significant part of it is written off to repay the loan. As a result, people have too littlethe amount of funds for life.

How to turn off?

People who agree to connect an overdraft are not notified about exactly how it is turned off. Therefore, if citizens are not interested in using this function, then they have a question about how to turn it off. To do this, you need to contact the bank branch where the corresponding application is drawn up. Documents to the existing bank account are attached to the application.

Failure to use this banking offer does not result in any pen alties or fees. If the bank charges a fee from the client, then this is a significant violation that can be challenged in court. Additionally, you can file a complaint with the Central Bank.

Some banks offer the ability to disable the service directly over the Internet, so you don't even have to leave your apartment.

Conclusion

Overdraft is an unusual type of loan that can be used by individuals or companies. It is usually offered by salary cards or credit cards. The cash is issued for a short period of time, and a low limit is also offered.

The debt is repaid at the first receipt of money on the card. This type of loan is often useful and necessary, but sometimes it leads to debt.