What is an overdraft and how does it work?
An overdraft loan (or even overdraft or overdraft) means a loan that allows the bank account holder to dispose of “in minus” money in that account.
It is usually offered by banks as a supplement to current accounts, it can be used at any time, even repeatedly. This is a short-term and non-purpose type of loan, with a maximum maturity of six months to a year, depending on the bank. The Bank also sets time and money limits, ie it determines when the client can use the overdraft and to what amount.
The debt is repaid in such a way that the client increases the account balance by the amount borrowed (ie, as much as he draws in minus) + by interest. Usually this is done by an incoming payout that fully or partially covers the interest debt.
As it is a short-term loan, interest is higher (approximately 18.9% pa). For each day your account is minus, interest is added to the debt. (So the sooner you settle the debt, the less you overpay the bank.) On the other hand, most banks do not require the establishment and maintenance of a loan.
You can borrow 5000, but also hundreds of thousands
You can borrow from 1 to 5 000 CZK to the amount of approximately 60 to 300 000 CZK, depending on the limits of the particular bank. Tio bank offers up to CZK 3 million. More extensive comparison of overdraft offers at selected banks.
Types of overdraft?
Banks distinguish a secured overdraft, that is, in most cases, a term deposit of the same or higher than an overdraft loan, and an unsecured one that requires no guarantee (but only some banks offer it).
Advantages and disadvantages of overdraft
An indisputable advantage of an overdraft is that thanks to it, the client has certain certainty of his / her solvency by paying such payments as SIPO, direct debit, other payments etc. from the account to which he / she has overdraft. account balance zero.
TIP: Don’t forget to repay – it’s still a loan. Also keep in mind the limit set by your bank.
The disadvantage of overdraft is the higher interest rate and relatively high penalties for breaking the limit.
Overdraft for entrepreneurs?
Banks usually offer an overdraft adapted to the needs of entrepreneurs, such as Rairaibank, ABC, Tio bank, etc. It is advantageous to use an overdraft loan for your business if your company has enough income; in such a case, the debit balance is paid relatively quickly and the entrepreneur thus saves significantly on interest (which, as we have mentioned, is regularly credited on a daily basis and increases the amount owed). A common practice in this overdraft is also drawing in foreign currencies.
What to watch out for?
Overdraft functionality seems uncomplicated, but think that if you exceed the amount you can draw, you will pay a high penalty (around 25% pa).