A credit comparison provides in such cases numerous offers at much better terms. Another advantage of such a rescheduling lies in the increased planning security, since the interest rate of installment loans is fixed over the entire term, while the interest on the credit line are variable.
The high interest rates on a credit line are criticized by consumer advocates as well as some political parties. Sometimes a limit on the interest on a credit line is required. In return, the banks point out that the credit line is granted without checking the creditworthiness and therefore the high risk premiums are justified.
What is a credit line?
A disposition credit (or even credit line) is a relatively simple financing, which is offered by almost every financial institution. Finally, it is a so-called overdraft facility, which is granted by the bank. If there is no more money in the checking account, the bank can grant this so-called overdraft facility. The amount of the overdraft facility or the disposition credit usually amounts to two or three monthly salaries of the account holder. However, even if the account holder quickly comes to money, this type of financing has its downsides. Mainly because this type of financing is by far the most expensive loan that the borrower or account holder can get.
The discretionary credit and its pitfalls
The car is broken and needs to be repaired as soon as possible. On your account are just 1,000 euros, but the repair of your car costs alone 500 euros. And you know that your monthly fixed costs are just under 800 euros. In the end, you therefore have 300 euros too little in the account. One possibility is the credit line. They “cover” the account and borrow – so to speak – the money for the next month in advance. Many account holders, who have relatively low incomes, use that kind of financing even if at the end of the month the money is already missing and still any purchases or acquisitions have to be made. Almost every financial institution grants its customers corresponding financing. However, the customer must be aware that that type of loan is the most expensive way to earn money.
By far the most expensive financing on the market
The credit line is – by far the most expensive financing that can be offered by banks – compared to installment loans. Interest rates are just under 10 percent; In some cases, banks can also charge 12 percent to 15 percent. Anyone who slips into the sun with their account every month should therefore consider whether a possible installment loan is cheaper. Even with spontaneous purchases or repairs, it is important that the account owner considers whether he will not enjoy more benefits with a standard installment loan at the end. The credit line is particularly advantageous when, in fact, the money is insufficient, unexpected payments have to be made, or the expenses overlap with the revenues, so that the account is down for one or two days.
Which loan amounts are granted?
The amount of the loan is in many cases two or three times the monthly income of the account holder. With a monthly income of 1,000 euros, the bank can thus offer credit facilities in the amount between 2,000 euros and 3,000 euros. However, the fact is that this type of funding is not recommended. The interest rates are so high that – for example, 1,000 euros – monthly interest in the amount between 100 to 150 euros can be incurred. For this reason, it is advisable to consider other financing instead of the disbursement credit.