With Metabank and the savings bank subsidiary 21Directaloan, two prominent direct banks have abolished the penalties for tolerated overdrafts. However, bank customers should not break their credit line: there are still many potential disadvantages.
A “disinvolvement revolution” in favor of chronically unstable bank customers is – with regard to the banking market only on a selective basis – the abolition of the penalty interest. Firstly, it is unclear how many customers will profit from the measure in general: Even if banks have a separate interest rate for tolerated overdrafts in their price list, they must not tolerate orders beyond the agreed discretionary credit. It is thus possible that the aggregated saving for all customers together is very low. For the banks, the abolition would therefore not be a big step.
Without penalties no tolerated overdraft?
Secondly, it is conceivable that banks may change their overdraft policy following the abolition of their penalty rates: possibly tolerated overdrafts may be tolerated less or not at all by the banks concerned. Whether it will come in the coming weeks and months to increased cancellations Klammen customers remains to be seen.
Third, permanent account transfers are still not a good thing. Metabank and 21Directaloan, with nominal interest rates close to 8.00 percent, are among the more favorable providers on the market. However, customers with good and average credit ratings receive installment loans at interest rates of approx. 4.00 percent and thus significantly more favorably.
The credit rating will continue to harm creditworthiness
On average, the market reality is still quite different. FMH Finanzberatung, which claims to be independent, estimates the average borrowing rate for utilized, disposition credit extended at 10.27 percent. FMH estimates the average interest rate for tolerated penalties at 14.62 percent – peaking at almost 18.20 percent.
Fourthly, a overdraft of credit lines granted leads to losses on the personal creditworthiness of the borrower. Many banks do not demand for free credit in the submission of account statements of the past six to twelve weeks in the case of loan applications: If there are overdrafts, lending is often denied. Even raising an existing disbursement credit is much more difficult if the credit line is already in syndication.
Debt rescheduling with installment or frame loan
The credit line therefore remains a financing solution for short-term financing needs and should not be used on a permanent basis. If a leveraged loan can no longer be repatriated from current income, an installment loan is the better solution – in the current market environment, long maturities are also available at low interest rates, resulting in debt rescheduling with low monthly installments let realize.
If spontaneous demand for money occurs more frequently and credit inquiries are to be avoided, a credit facility may be suitable interest rates are significantly lower, but repayments are not significantly more inflexible than for credit facilities.