Shopping, repairs, birthday presents, clothes: At the end of the money there is often a lot of month left. Many then overdraw their account and use the overdraft facility. And usually every month. This can quickly become expensive. We show you how to get by without overdraft.

At the turn of the year, not only are the temperatures in the basement – the account balance is usually at its lowest for the year. In 2019, planned spending on Christmas presents alone in UK rose to 472 GBP per capita in 2018. Whether jewelry, toys or tickets for cultural events: we like to give presents. 13 per cent want to make more than eleven people from their circle of acquaintances happy. But the Christmas euphoria comes to an abrupt end in January: many bills flutter into the house, such as car insurance or vehicle tax. According to a survey conducted by the market and opinion research institute YouGov, around 18 million GBPs therefore use their overdraft facility. 7.6 percent of them already used it in January 2020.

Above all, however, unplanned expenses put a strain on the current account – all year round. An unexpected washing machine repair, high costs for dental treatment, spontaneous online purchases or a work-related move: if you don’t have a financial buffer, you will inevitably overdraw your account. Sound budgeting helps to keep an eye on running costs. But even this is of no use if unplanned events occur. Many people then find themselves in financial difficulties, which they bridge with a short-term overdraft facility. The danger: overdrafting the current account is not a one-off event and the overdraft facility is exhausted from month to month.

When is an overdraft facility approved?

If you have an appropriate credit rating, you will be granted an overdraft facility on your current account when you open the account. However, you must be of legal age and may not have a negative Schufa entry. A regular income must also normally be proven. Usually you will then receive an overdraft facility amounting to two to three monthly salaries.

Interest is charged on this, which currently averages 10 percent. If the account is then overdrawn beyond the overdraft facility, overdraft interest is incurred. At an average of 15 percent, this is much higher than the interest on the overdraft facility. After opening the account, the bank checks the creditworthiness of the new bank customer again within six months – primarily on the basis of incoming payments. Afterwards, the customer can use his overdraft facility flexibly and without any red tape.

Important to know: If the regular income is no longer available, the house bank is entitled to reduce the overdraft facility or to terminate it.

What is an overdraft facility?

An overdraft facility comes into effect when the credit line granted by the overdraft facility is exceeded. The interest for this is again higher than for the overdraft facility. The overdraft is therefore one of the most expensive personal loans for bank customers. It is used to bridge financial bottlenecks in the short term.

Important to know: If the overdraft facility is exceeded, the bank may terminate the overdraft facility. The lending bank is free to decide whether to reduce the credit line or cancel it altogether. This protects the consumer from overindebtedness. If this happens, you must immediately bring your account out of the red – otherwise you may even have to terminate the account.

Dispo: flexible but expensive

According to an Ipsos survey, around 38 percent of britains use their dispo occasionally – just under 7 percent even permanently. Of these, 29 percent use their disposition on average for more than 500 GBP. Just under 12 percent even use their credit line with more than 1,500 GBP. However, this is not what the dispo is designed for. For those who regularly need more money than they have available, the overdraft facility is clearly the most expensive form of credit. The average interest rate is currently 10 percent. No problem if the dispo is only used for a short time and rarely.

The temptation, however, is great to use the credit line of two to three months’ salary fully and permanently. Many use it almost unnoticed, for example when paying at the cash desk or withdrawing money from an ATM. But for large amounts and continuous use, the dispo is simply too expensive. Since there are cheaper alternatives, it is worth considering an instalment credit.

More often in the red? An instalment credit as a cheaper alternative to overdraft facilities

Anyone who has been using their dispo for a longer period of time should apply for an installment loan.

Are you more often in the red? Then the overdraft facility with its high interest rates is not a long-term solution. A favourable alternative to overdraft facilities is to take out an instalment loan. This often saves half the interest expenses compared to the usual interest rates of overdraft facilities.

At Credit company you can apply for a repayment loan of up to 75,000 GBP. This is not earmarked and you can complete the installment credit with us in just 10 minutes online. You simply determine the amount of your monthly instalments and the term. Our constant interest rate and the flexible term between 12 and 84 months ensure that you can plan your finances optimally again. If you would like advice, you can reach us online, by telephone or in one of our more than 1,000 partner bank branches of the Cooperative Financial Group. As a fair and responsible partner at your side, we will be happy to take care of your concerns. Use our online credit calculator or make a non-binding inquiry.

If you notice that you will not be able to pay back your overdraft even in the long term and that your expenses will continue to exceed your income in the future, it is always worthwhile calling on professional help.  Stiftung Britain Plus offers free and anonymous first aid for people affected by overindebtedness – without any waiting times. The earlier you tackle the problem and get an overview of your budget, the better the help can be provided.