With an overdraft, refinancing is almost always worthwhile. This is because the overdraft is extremely expensive by design. Banks grant their customers an overdraft limit within which they can overdraw their account. How large this framework is depends on the creditworthiness and reliability of the respective customer. The account can be overdrawn flexibly at any time without having to submit a loan application. In addition, there are no specific repayment modalities, but bank customers balance their account as soon as they see fit.
An overdraft facility offers bank customers great financial flexibility, but represents a high risk for the banks themselves. They neither know what the money will be spent on nor can they plan when they will get it back. This uncertainty increases the risk of failure for banks. They compensate for this by charging high interest rates for the overdraft facility. In many cases these are in the double-digit range. Therefore, this form of loan is only worthwhile to bridge short financial bottlenecks and if the account is balanced again in a timely manner. However, if the money is needed for a longer period of time, the overdraft facility is simply too expensive.
In this case, it is advisable to take out a cheap installment loan with a low interest rate. The loan amount available is then used to balance the account. In this way, borrowers free themselves from the high interest rates and only pay the significantly lower interest rates for the installment loan. A monthly installment is agreed that includes both repayment and interest. This means it is clear to both sides from the start when exactly the loan will be repaid. This prevents you from falling into the overdraft trap where the interest rates are so high at some point that you can no longer balance the account and will never be debt-free again.
2023-10-04 17:00:16
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