There are now so many types of credit that the layman can quickly lose track. In our new article series, we explain the individual loans and thus help you to get a good overview.
What is a credit line?
Probably the best known loan is the credit line. This is automatically used when payments are made from the account, but this has no sufficient coverage. The credit line is also called current account credit. The overdraft facility is limited in terms of the credit line.
What are the advantages of a credit line?
A big advantage of the MRP is that it optimally cushions short-term financial bottlenecks. If the budget money at the end of the month is no longer enough, you have your further purchasing power thanks to the credit line.
What are the disadvantages of a credit line?
The credit line may be very convenient, but also includes various disadvantages. So its use is usually very expensive and leads to high interest rates, which are ultimately deducted from your account. While it may initially seem helpful to be able to continue shopping despite the lack of money in the account, in the worst case this can lead to a vicious circle that ultimately ends up in the debt spiral. Therefore, keep in mind that in the next month you will again reduce your income considerably.
Bill – Consumer protection in the case of credit facilities should be improved
The current account is quickly overdrawn for unforeseen things, but for bank customers this is only an advantage at first glance.
Because the discretionary interest rates are very high compared to an installment loan. Some financial institutions demand up to 14.25 percent (2015) of disbursement interest, despite the low interest rate phase.
To protect against overdue interest, the Federal Cabinet adopted on 15/07/2015, a new bill.
The bill provides, among other things, if a customer has overdrawn his checking account for months that offered in a conversation with the bank cheaper alternative lending.
In addition, the discount rates of the banks should be published, clearly visible on banks’ websites.
This allows consumers to quickly and easily compare current dispo interest rates.
The planned obligation to provide advice and the improvement of price transparency should better protect bank customers from the debt trap.
Replacing or reposting the credit line
Due to the high interest rates of a credit line, a debt restructuring is often a good idea, which is associated with much lower costs for the consumer. Use low lending rates to borrow up to the amount of your utilized credit line and balance the latter with the loan amount. You pay the loan in monthly installments. The best thing is that the interest on this is much lower than would be the case with the credit line. Your debts have thus beaten a little trick. Even if you still have to repay them, the amount is ultimately a lesser, because you only have to pay a small part of the interest.
First, compare loan terms and conditions, then replace billing
Take advantage of the opportunity in times of low installment loan interest rates to pay off the overdraft facility. And even when it comes to a quick credit decision, use the free loan calculator for a loan comparison!