The article briefly explains how overdrafts and tolerated overdrafts work – and what consumers need to pay attention to in order to avoid unnecessary costs.
Granted overdraft: This is how the overdraft works
An overdraft facility provides short-term financial flexibility if the account temporarily has more expenses than credit balances. It is agreed in advance with the bank and is legally considered a loan to which there is no entitlement. The amount is based on the regular receipt of money, usually determined automatically, as BaFin explains. If the credit line is used, this is already considered acceptance of the loan.
The bank sets the interest rate itself, limited only by the legal ban on usury. Since the overdraft facility is one of the most expensive forms of credit, it should only be used for short-term bottlenecks. A Verivox analysis based on BaFin data shows that the usual interest rates are on average well into the double-digit range.
In addition, the bank may reduce or cancel the overdraft facility granted, for example if the financial situation deteriorates or regular payments are not received.
Tolerated account overdraft: When the account slips into the red without an agreement
Sometimes it happens that the account slips deeper into the red than the agreed overdraft limit actually allows. This so-called tolerated overdraft occurs without prior agreement – the bank decides on a case-by-case basis whether to make a payment anyway. There is no entitlement to this, as BaFin emphasizes.
Banks work with set limits internally, but can end their tolerance at any time. If the overdraft is no longer accepted, customers must immediately settle the negative balance, otherwise their account may even be terminated.
Since this form of overdraft is riskier for credit institutions, interest rates are usually even higher than with regular overdrafts. Verivox’s evaluation shows that many banks charge noticeable interest surcharges for tolerated overdrafts and sometimes charge very high interest rates.
What consumers should consider: costs, risks & alternatives
If you occasionally overdraw your account, you should regularly monitor developments in your account statement, as interest rate changes will also appear there. BaFin recommends keeping an eye on both overdraft and overdraft transactions in order to avoid unnecessary costs. In particular, tolerated overdrafts are difficult to plan for and should therefore, if possible, not arise in the first place.
If the loss lasts longer, the costs can rise quickly. Verivox shows that in such cases it can make sense to restructure your debt into cheaper forms of credit, such as an installment loan with predictable repayment installments.
It’s also worth taking a comprehensive look when choosing a current account: In addition to interest on overdrafts and overdrafts, account management fees, card costs and conditions for cash withdrawals play an important role.
Jonas Vogt, editorial team at finanzen.net
