Credit instead of overdraft: the benefits of an installment loan and a credit line

checking account: how to avoid expensive overdraft interest rates

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If you often overdraw your checking account, you pay high fees. A more favorable option is an installment loan or a credit line. What is the better choice?

Berlin. The first few weeks of the year are tough financially for many households – but this time, with skyrocketing prices for gas, electricity and some food, money is especially tight. inflation is added to annual premiums for insurance as well as credit card settlements with Christmas shopping. Even savings are often insufficient for people who have been hit by the pandemic.

With a dispokredit the tight coffers can be replenished. According to a survey, 6.6 million people did the same at the beginning of January, 17 percent more than in the previous year. But the overdraft facility costs high interest rates9.51 percent is the average rate charged by banks, according to the stiftung warentest foundation.

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Experts therefore advise, installment loans and the, largely unknown, framework loans (also call loans called) as an alternative to consider. Installment loans start at less than two percent a year, according to the foundation. For the more flexible credit lines, the independent FMH financial consultancy identified offers with interest rates starting at around three percent.

overdraft facility: too expensive as a permanent solution

The overdraft facility also has an advantage: it is available immediately, depending on requirements. But there is a danger that it will become an expensive permanent situation. "the dispokredit is suitable for bridging short-term liquidity bottlenecks, but it should only be used for this purpose," says marcus koster, an expert on financing issues at the consumer advice center in north rhine-westphalia.

The lawyer gives the following example: "If you know that fresh money will be coming into your account in 14 days and that you will make up the deficit, you can definitely use the overdraft facility despite the high interest rates."However, if the overdraft facility is used regularly on a monthly basis, this could be a signal to fundamentally review the income and expenditure of the budget, says Koster.

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Even customers who have borrowing can cope, should not constantly push the dispo in front of them in the case of longer-term shortages. "taking out an installment loan is a good alternative because the interest rates are usually far below those for the overdraft facility," says philipp rehberg, finance officer at the consumer advice center in lower saxony.

Alternative 1: installment loan

A installment loan must be repaid in fixed installments. Terms vary between about one and ten years. "the shorter the term, the more favorable the loan," says rehberg. For the search for offers, he advises – instead of free comparison portals – to use the paid installment loan comparison of the stiftung warentest (2 euros): "the stiftung is independent of providers, and the comparison is updated regularly."

An example credit amount According to the foundation, interest rates on loans of 5,000 euros for 24 months range from around 1.9 percent to just under 6 percent for offers that are not tied to a credit rating. for creditworthiness-dependent loans, the so-called two-thirds interest rate is around 2.5 to under 9 percent.

difference: what does "creditworthiness-independent" and "creditworthiness-dependent" mean?

In the case of credit offers, the distinction in "creditworthiness-independent" and "creditworthiness-dependent" important. In the first case, the same interest rate applies to all customers that the bank classifies as creditworthy. In the case of creditworthiness-dependent offers, the bank sets the interest rate individually: the better the creditworthiness, the lower the interest rate. consumers do not know beforehand which interest rate they will actually get. What’s more, the providers can work with super low interest rates advertise, but hardly anyone receives.

Therefore there is the two-thirds interest rate, which the bank grants to at least two-thirds of customers. the institutes are obliged to state the value in an example calculation in the advertising. "it provides orientation when obtaining an offer and also makes creditworthiness-dependent offers more comparable," says stiftung warentest.

Installment loans: what consumers should watch out for

But be careful: before signing the contract, you should be clear about the financial obligations. "if you can’t afford the monthly installments because of your income situation, you’ll end up using the overdraft facility again to service the installment loan. then the person concerned even bears double the burden," warns expert rehberg. Read also:why individual installment loans are often not worthwhile

The bank naturally checks the creditworthiness of the potential customer. Who fails at it, is all the more well advised to draw his conclusions. "if banks reject the loan application, this should be a warning sign to the consumer. Instead of using the dispokredit longer and longer, it might be better in such cases to seek debtor counseling at an early stage," says consumer protection expert Rehberg.

According to rehberg, a residual debt insurance policy that is often offered when a loan is taken out should be checked carefully: "Insurance policies are often very expensive, and they have exclusions so that the insurer does not have to pay in a specific case." in such a way certain illnesses are often excluded.

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Alternative 2: framework loan

The second alternative FRAMEWORK LOAN is more flexible than an installment loan. The customer agrees with the bank within which sums he can take up a credit if necessary, but not immediately or not at all must, for example between 2500 and 25.000 euro. It is not a prerequisite that the customer has a current account at the same bank.

For example, FMH-finanzberatung identified five nationwide offers without account commitment. The most favorable are from oyak anker (3.33 percent), ING (5.99 percent) and volkswagen bank (6.65 percent). In addition, there are 15 regional offers from savings banks with account lock-in and interest rates between just under 3 and around 5.6 percent. Interest only accrues on the portion of the credit line that is used.

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Taking out a credit line: it all depends

"if, for example, the washing machine breaks down, you can take out the framework loan instead of the expensive dispos," says FMH expert max herbst. In his opinion, the credit check is "no stricter than for installment loans". In addition, the framework can be used "without having to go through the credit check every time". However, it must also be remembered repayment be thought. According to FMH, most banks expect a monthly repayment of about two percent of the amount drawn down. Also interesting: giro and debit card – differences and new functions

From the point of view of consumer advocate rehberg, such an agreement can be worthwhile for consumers who, because of fluctuating income more frequent dispo loans need: "you can balance the temporary minus on the account with the cheaper framework credit instead of the expensive dispo."

Anyone with an irregular income but a good credit rating should therefore consider taking out a framework loan agreement "as a buffer for short-term financial problems". "he does not have to exhaust the framework, but always uses it only as required. This could be a good solution for freelancers and other self-employed people, for example," explains expert rehberg.

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