What is an overdraft loan? What is an overdraft: why is it needed and how to use it correctly? What does it mean taking into account the overdraft.

Irina Sherbul

Bsadsensedinamick

# Business Dictionary

Definition, features, pros and cons of the service

The first overdraft was issued in 1728, when a customer was allowed to borrow £1,000 more than was in his account. The loan was issued by the Royal Bank of Scotland in Edinburgh.

Article navigation

• What is overdraft in simple words
• How does overdraft with grace period work?
• What does credit limit mean?
• Advantages and disadvantages of a banking product
• Why is overdraft dangerous?
• Conditions of provision for bank clients
• Types of overdraft
• Allowed – standard model for all types of overdraft
• Technical overdraft - what is it?
• Salary overdraft
• Micro overdraft
• Overdraft with collateral
• Umbrella
• Unsecured overdraft for a large amount
• Credit and overdraft - what's the difference?

An overdraft is a short-term microloan. A loan in the form of an overdraft has a number of features that make it beneficial for individuals and legal entities.

What is overdraft in simple words

A card overdraft is a loan that can be obtained from any ATM using your debit card. To do this, you need to sign a one-time agreement with the bank to connect the quick loan service.

The concept of overdraft translated from English means “overspending”. This service makes it possible, in addition to fixed assets, to use additional ones as a loan. Accruals are made to the salary card of an individual or to the account of an individual entrepreneur.

When withdrawing additional funds from the card, the first money received into the account will be transferred to the bank as payment of the debt.

A bank overdraft provides an opportunity to quickly receive the funds you need at the right time. But you can use it only if you are sure that you can quickly repay the debt. Failure to meet your overdraft repayment deadlines can result in high interest rates.

How does overdraft with grace period work?

The overdraft scheme is to provide a loan for a certain period, often 30 days, but with additional agreement with the bank it can be extended to 60 days. In this case, for each day of debt, a certain percentage is accrued, corresponding to the bank’s annual rate.

The grace period allows you to avoid interest charges if the debt is repaid on time. More precisely, if you take a loan from a bank in the amount of 1000 rubles, you will return 1000 rubles, without overpayments. The main condition of this option is payment of the debt within the period established by the contract.

You need to know what an overdraft limit is and fully comply with it. Violation of the established restrictions will entail penalties from the bank.

What does credit limit mean?

When you activate an overdraft, a limit on the loan amount is set. It is tied to the amount of funds turnover on the account. The limit of the established option will depend on the individual’s salary. For example, 10,000 rubles are credited to your account every month. The loan limit may be equal to this amount, but no more.

When checking your account, the ATM may display your available balance including overdraft. Be careful not to confuse fixed assets with credit.

Terms depend on the bank and your credit history. Certain credit institutions can provide a loan of up to 50% of the current amount.

Before signing up for a service, please read the contract carefully.

Advantages and disadvantages of a banking product

Overdraft is a special form of account lending, a convenient option on a bank card that will allow the owner to receive a number of advantages when a loan is needed.

Main advantages of the service:

• Low percentage. The rate is on average 2–6% lower than that of conventional loans.
• Automatic repayment of debt to the bank. If the client's account balance is positive, the funds will be automatically debited and transferred to pay off the debt.
• Independent regulation of the amount of debt. The client decides whether to use the loan or not. If a loan is needed, the borrower himself determines the amount (within the established limit) that he wants to receive at that moment.
• Fast connection. An important point that a bank employee analyzes to enable the option is the movement of funds in your current account. The banker can receive this information within a few minutes, so it won’t take much time to process a loan for your card.

The advantages listed above make overdraft one of the best ways to get a microloan. But it is necessary to take into account the disadvantages and risks of the service.

Among the disadvantages are:

• Limited possibilities for loan amount.
• Monthly repayment. It is necessary to close the debt 100% within the agreed period.
• It is necessary to maintain cash flow. The movement of funds in your account must correspond to the amount agreed upon in the agreement with the bank.

If the second and third paragraphs are violated, the bank may impose penalties on the borrower. If after 25–30 days the debt has not been paid, interest is charged, increasing the debt.

Why is overdraft dangerous?

Regularly using an overdraft, over time, clients begin to forget to return funds to their account in a timely manner. Such an oversight will lead to a number of consequences.

Failure to pay a debt on time is a violation of the terms of the contract, which may lead to:

• Fine. The bank has the right to impose sanctions on the borrower if there is a delay in repaying funds.
• Increase in interest rate. By the next loan tranche, the rate may increase by several percent.
• Denial of credit. If there is a regular delay in loan repayment, the bank may completely refuse the loan and terminate the agreement.
• Bad credit history. You should not think that if one bank refuses, you will be able to conclude an agreement with another. If you fail to comply with the bank's conditions, you will ruin yours. Every bank will know about your inability to pay your debts on time.

The danger of overdraft seems imaginary. Most borrowers believe that they will always be able to repay the loan on time, but in the end, sooner or later, many fall into a credit trap. To avoid tripping over pitfalls, follow simple rules:

• Remember the debt repayment date.
• There should be no loan debt for one day a month.
• It is necessary to maintain the cash turnover on the card agreed with the bank.
• Monitor the expiration date of the loan agreement.

Knowledge of these points will help to avoid violations and associated risks. But in order to know the terms, interest and other terms of the contract, when drawing up, pay attention to some of its points:

• Overdraft percentage.
• Commission for issuing a loan.
• Overdraft fee.
• Fee for considering an application to connect the option.
• Loan application and collateral fee.
• Insurance.

Not all expenses listed above may be specified in the contract. But when registering, you must carefully study these points.

Conditions of provision for bank clients

This loan is provided to individuals and legal entities. Phys. a person receives a loan for personal needs and can use it in any situation that requires additional funds.

Legal entities may need an overdraft in three cases:

• Cash gaps occur within a month;
• business needs a short-term loan;
• the company needs to have a “financial cushion”.

The use of an overdraft gives the company ample opportunities for profit growth. If you introduce additional capital correctly and in a timely manner, you can significantly increase trade turnover.

This scheme only works if an overdraft with a grace period is activated.

Each bank sets its own conditions for using the service. But there are general rules for concluding a contract:

• The loan term is 1–12 months.
• The debt must be repaid once a month, unless other conditions are specified in the agreement.
• A current account must be opened at the bank providing the service.
• Credit and debit card turnover should be stable.

If all the conditions and nuances have been studied, then you can start connecting. To obtain an overdraft you must do the following:

1. Contact the bank employee who will provide the loan.
2. Find out under what conditions the overdraft will be activated.
3. Provide the credit department with all necessary documents.
4. Wait for a decision on activation.

Bank overdrafts are issued subject to the client meeting all necessary requirements.

Types of overdraft

There are several types of overdraft, each of which differs in interest rates, payment limits, terms of provision and methods of repayment. There are several main categories of this loan:

• accessible;
• technical;
• salary;
• micro;
• collateral;
• umbrella;
• unsecured.

To choose the best option for yourself, you need to understand the difference between them. To do this, each type should be analyzed in detail.

Allowed – standard model for all types of overdraft

An approved overdraft is a type of collateral that meets the terms of the agreement. Such a loan is considered classic and is issued in accordance with all standard requirements. The limit is set in accordance with the average cash turnover on the account, and the average rate is 14.5% per annum.

Technical overdraft - what is it?

Unauthorized overdraft (also called technical, unauthorized or prohibited). The name itself suggests that withdrawals exceeding the balance on the card occur without the approval of the bank.

The issuance of a technical overdraft can occur for various reasons, for example, there was an overdraft amount of 1000 rubles left on the card, you paid for the purchase in dollars equivalent to the balance, but while the banking transaction was being carried out, the exchange rate increased, and the cost of your purchase was 1050 rubles.

Exceeding the limit is called an unauthorized overdraft. In this case, the client will see a red balance on his card (the amount of overspending that exceeds the limit will be highlighted in red).

Technical overdraft can be provided or unprovided:

• Provided. Negotiated with the bank and included in the contract. When it occurs, you must quickly repay the debt with the specified interest.
• Unintended. The occurrence of such a case is not specified in advance; in such a situation, the borrower will be charged a fine. This possibility is provided for by the provisions of Article 395 of the Civil Code of the Russian Federation.

Regardless of the type of technical overdraft, the debt must be repaid as soon as possible, along with the established interest, which is often up to 50% per annum.

Salary overdraft

One of the classic types. It allows you to overspend your salary card. This service is in demand because it does not require additional registration and is often installed on the card immediately after it is issued.

The limit of such a loan is on average 50% of the salary amount, and the period of validity of the loan agreement is no more than 12 months.

If a client needs a loan, he can withdraw funds from any ATM or pay with a card in a store. The next time your salary arrives in your account, the amount of debt will be automatically written off and transferred to the bank.

Micro overdraft

A special feature of this loan is the minimum established limit of 300 thousand rubles. This amount is insignificant for legal entities, so banks consider this type of loan a micro overdraft.

Not taking into account the minimum limit, the remaining conditions for obtaining and repaying the loan do not differ from the classic microloan.

Overdraft with collateral

Every bank wants to be sure of the return of their funds. Therefore, when providing an overdraft option, a credit institution may require collateral as a guarantee of debt repayment.

The bank accepts the following types of collateral as collateral:

• real estate;
• circulating products;
• cars;
• land;
• equipment.

All other terms of the agreement correspond to a standard overdraft.

Umbrella

Designed for a network of companies. It is expected that this will cover the cash gaps of the entire holding, which must include at least 3 companies.

The contract is drawn up for a period of up to 12 months. The service includes the following benefits:

• no commissions;
• flexibility in choosing a repayment scheme;
• possibility of changing borrowers during the term of the contract.

An overdraft will provide a “financial cushion” for the company in critical situations.

Unsecured overdraft for a large amount

For time-tested clients, an overdraft is provided without additional collateral of property. In such a situation, stable financial turnover on the card is a guarantee of payment.

It is worth considering that this only works for borrowers who have been cooperating with the credit institution for several years.

Credit and overdraft - what's the difference?

Both services give the client the opportunity to receive a cash loan for a certain period, but the conditions for obtaining a loan and repaying it differ significantly. The main differences between a loan and an overdraft are:

• Interest rate. An overdraft is issued at a rate that is on average 4% lower than a regular loan.
• Debt repayment period. A classic loan agreement is provided for a period from several months to several years, while overdraft debt must be repaid within 30 days from the date of receipt of the loan.
• Speed ​​of obtaining a loan. Loan processing takes from several hours to several days. You can withdraw or pay using an overdraft at any time in stores or terminals.
• Sum. You can get a loan in an amount several times your monthly income. Overdraft has a limit that cannot exceed the average turnover of funds on your bank card.
• Debt repayment. When overdrafting, incoming funds are automatically debited from the account to repay the debt; for loan repayment, there is a special schedule that distributes the repayment of the loan amount over several months.

An overdraft differs from a line of credit in a number of factors. But it is impossible to say for sure which type of loan is better. Each of them has its own advantages and disadvantages. You will have to choose the type of lending yourself, depending on your individual needs.

In this article, we described in our own words and in simple language what an overdraft is. Learn to use the service, learn the basic rules and nuances, and the service will help you out more than once in critical situations.

In the process of economic activity, many companies are faced with a very contradictory situation: raw materials have already been purchased and the time has come to pay suppliers, but the products themselves have not yet been sold.

As a result, there is no revenue, and therefore no funds to pay off accounts payable. It is for such situations of short-term business insolvency that an overdraft loan was created.

This type of lending, such as overdraft, appeared in the Russian economy relatively recently, but has already gained popularity among companies experiencing temporary financial difficulties due to the specifics of their business activities.

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An overdraft loan is a short-term loan that a bank provides to a company in case of insufficient funds in its current account.

An overdraft loan is characterized by the following features:

1. It can only be obtained by companies that have a current account with this financial institution.
2. Only responsible and reliable clients can count on it.
3. The bank sets a limit on the loan amount and the period for its issuance.
4. Overdraft is short-term in nature - from several weeks to several months.

Overdraft business lending is implemented on the basis of Article 850 of the Civil Code of the Russian Federation.

The legal basis is the annex to the agreement on opening a current account, which is signed by a legal entity with the bank.

An overdraft can arise only when, in the course of business activities, while paying another counterparty, the company discovers that there are insufficient funds in the account.

Goals

There are no strict legal restrictions on what exactly overdraft funds should be spent on. The main thing is that all costs are related to the business activities of the company.

Thus, a loan provided by the bank can be spent on:

• purchase of raw materials and materials;
• salaries of the company's employees;
• covering obligations to the budget and extra-budgetary funds;
• purchasing equipment and other goods needed by the business.

Overdraft funds are prohibited from being used to repay loans from other banks.

This limitation occurs because the funds are not directed directly to production activities, which contradicts the very essence of the overdraft.

Requirements for the borrowing company

As mentioned above, only those legal entities that have a current account with a given bank and have proven themselves to be reliable clients during their cooperation with it can count on an overdraft.

There are a number of strict requirements that a company must meet, namely:

1. At least 1 year must pass from the moment of state registration of a business, although some Russian banks set the bar at 3 years.
2. Funds must be constantly transferred through the company's current account, which is evidence of active business activity.
3. Each financial institution sets a minimum limit for monthly turnover of funds in a client's account. Companies that fail to achieve it are automatically denied an overdraft.
4. There are no cases of seizure or suspension of operations in the history of the current account.

Overdraft lending is only for those companies that have proven themselves as responsible and serious partners for a long time.

The longer a company is a client of a given bank, the larger the overdraft it can count on. The term and amount of the loan also increase if the company’s turnover grows regularly over the course of six months.

How to get

For legal entities, the process of obtaining an overdraft depends on whether the account opening agreement contains an annex regarding an overdraft or whether there is none.

If there is an application, the company must prepare the following documents and submit to the servicing bank:

• application for an overdraft;
• a certificate from the bank itself stating exactly what kind of turnover was made on the company’s accounts over the past six months;
• document confirming that there is no outstanding debt to the bank.

All the above papers are considered, as a rule, within 1-2 working days, after which the banking commission announces its decision to the client.

In the absence of an application, the bank must first enter into an additional agreement with the company, the basis of which will be a package of documents that includes the constituent documents and financial statements of the company.

In order for the bank to provide an overdraft loan, the client will have to write an application.

Only after this will the financial institution decide whether to grant an overdraft or refuse to issue it. The funds limit will be set depending on the size of turnover over the last six months.

Overdraft costs

An overdraft, like a regular loan, is provided to the client strictly for a certain period, which is 30-180 days. If the previous overdraft loan is not repaid, then there is no point in counting on receiving the next one.

In addition to the loan repayment itself, there are other costs for servicing an overdraft, including:

• The interest rate on the loan, which depends on the period of operation of the company and its revenue.
• Overdraft processing costs.

For their regular and reliable customers, many banks provide a grace period for lending and also reduce the interest rate as much as possible, which makes this type of lending more profitable than traditional loans.

Among the costs, it makes sense to mention collateral property. The fact is that a company wishing to attract a large overdraft usually presents movable or immovable objects to the bank as collateral. In this case, another additional agreement regarding collateral relations is drawn up.

Difference from loan

Despite the fact that an overdraft is a type of bank loan, it still has specific features that distinguish it from typical short-term loans, in particular:

1. It does not draw up a lending agreement, but only an appendix or additional agreement to the account opening contract. It specifies the term of the loan, the limit of funds and the interest rate.
2. The overdraft only comes into effect when the funds in the company's bank account are depleted.
3. The loan provided does not have a specific purpose: it is only important that the funds are spent on the business activities of the company.
4. The procedure for obtaining an overdraft is more convenient and simpler and does not require filling out a huge number of papers, and the period for reviewing documents is also reduced to a minimum.

If, having opened a bank account, the company strictly fulfills its obligations, then after six months it can already count on receiving an overdraft loan without any special difficulties and tedious procedures.

Cards with overdraft

If the basis of a profitable short-term loan for legal entities is a bank account, then for individuals it is an overdraft card, the use of which is more profitable than a small consumer loan.

You can get it by contacting any of the bank branches that work with this product and concluding an additional agreement based on an existing credit or debit card.

A card with an overdraft allows the client to spend funds in an amount greater than what is available on it, in particular:

• Credit card with an overdraft implies that in some cases the client can directly use it to attract an additional short-term loan in addition to the funds already provided by the bank.
• Debit card with an overdraft implies that a bank client can use a short-term loan if his own funds in his account are not enough to purchase goods or services.

Currently, most banks provide customers with a grace period on an overdraft card. If the client manages to repay the loan during this time, he will free himself from paying interest on the overdraft.

Overdraft is an excess of the limit of funds on a debit card currently available for use. You can explain what an overdraft at Sberbank is using the following example: you have 1,000 rubles on your plastic card, and in a store you liked a product worth 1,400 rubles. You can pay with your card or withdraw 1,400 rubles and purchase the desired product if the overdraft service is available to you. The idea is that you take out a small loan from Sberbank at interest, which you undertake to repay within a certain time.

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The overdraft service can be connected to a debit card (in rare cases, to a credit card). It can be used by owners of all classic, gold, platinum, premium, and youth payment systems Visa or MasterCard.

What is an overdraft at Sberbank?

At the time of the introduction of this service, it was available only to legal entities. Overdraft was introduced with the aim of ensuring a constant flow of cash turnover for companies, which, if there was no money in the account at the moment, could use borrowed money, after which, when money arrived in the account, the required amount was debited automatically.

IMPORTANT: according to the bank’s terms and conditions, when using an overdraft, the bank has the right to directly write off a fee from the client’s card to pay off the debt. This means that funds are written off automatically, regardless of the desire or unwillingness of the owner of the funds.

Today, overdraft is also available to individuals. Depending on the situation, the service is connected to the card automatically, or upon written application from its owner.

1. The overdraft limit is set by the bank for each client individually based on the data received about him (amount of income, regularity of cash turnover on the card, and so on).
2. The amount ranges from 1,000 to 30,000 rubles for individuals, from 100 thousand to 300 thousand rubles for legal entities.
3. The interest rate is 18% per annum if the account is in rubles, 16% if the account is in foreign currency.
4. The period of provision is 12 months. That is, a certain limit is set for a period of 1 year, and during this time you can use overdraft funds from time to time.
5. The debt repayment period is 30 days. Within a month, funds used via overdraft must be returned to the card in full.
6. In case of exceeding the limit or the amount of debt is calculated at a rate of 36% for a ruble account, 33% for.

What is the difference between an overdraft and a loan?

Overdraft is similar in some ways to a loan, but there are significant differences between these two concepts.

• Overdraft is available for both debit and credit cards, but is most often used by debit account holders.
• Overdraft limits are significantly lower than credit limits.
• Getting access to an overdraft is much easier, the conditions are more favorable than when issuing a loan.
• The interest rate for using borrowed funds is 18%.
• The repayment period must be within 30 days, otherwise sanctions will apply.
• The amount of repayment must be in full, and not in parts, as when using a loan.
• In case of violation of the terms of use and repayment of the debt, recalculation is made at an increased rate - 36%, and from the first day of using the money, and not from the moment the delay begins.

Overdraft for salary card

Sberbank willingly provides salary card holders with the opportunity to use funds through an overdraft, since they are considered reliable clients with confirmed solvency, because the monthly receipt of money on the card guarantees timely repayment of the debt.

The overdraft limit in this case is set by the bank based on the number and amount of cash receipts. The limit cannot be more than the average monthly salary. Sberbank most often sets a limit of 50% of the client’s salary.

When an advance and salary are received on the card, the fee is first written off to pay off the overdraft debt.

Overdraft for credit card

Each client decides for himself whether it is advisable to use an overdraft on a credit card, since funds are already borrowed from the bank at interest, but the provision of such a service is possible. Situations can be different, and money may be needed urgently, but it has been exhausted, and there is simply nowhere to get it from, then an overdraft on a credit card will help to get out of the situation.

Overdraft is provided to credit card holders upon confirmation of solvency. The positive decision of the bank is also influenced by additional confirmed sources of income, the presence of other debit cards or the presence of an open debit account, which is a guarantor of debt repayment.

How to apply for an overdraft at Sberbank?

To apply for an overdraft, you must have a Sberbank debit card (for individuals) or a current account (for legal entities). Based on data on cash flows on the card or account, as well as other documents provided confirming the client’s solvency, the bank makes a decision on the amount of the limit.

How to arrange a service for a legal entity

To register, you must visit and provide the following package of documents:

• application for service connection;
• completed application form of the borrower (as well as the guarantor);
• legal documents for the organization;
• financial documents to confirm income.

How to apply for a service at Sberbank for an individual

• upon receipt of the card. Most often, when you issue a card, you can activate an overdraft service. To do this, in the agreement in the column “Overdraft/Desired limit amount” you will need to check the box and indicate the amount;
• submit an application at a bank branch. If you have been using the card for a long time, but are only now thinking about connecting to the overdraft service, you can come to a bank branch and write a corresponding application. You will need to provide a passport and a document confirming your income (most often this is a 2-NDFL certificate from your place of work for the last 6 months);
• through . This method is not available to individuals; it can only be used by corporate clients. If you have, then you can activate the overdraft service in your personal account via the Internet.

  First, you need to think carefully about everything and decide whether you need an overdraft when you receive the card. At the time of issuing a card, the easiest way is to refuse the service by putting “0” in the column where the amount of the overdraft limit should be indicated.

  Secondly, if the service has been activated, you can disable it only by writing a corresponding application at a Sberbank branch.

  Thus, the overdraft service on a Sberbank card makes it possible to use funds that you do not currently have. After a certain period of time, they must be returned in full. Terms of provision are not always favorable. However, by connecting an overdraft to his card, the client can always count on a certain reserve of funds in unforeseen situations.

Many people in their lives have to deal with situations when money is urgently needed, but it is impossible to borrow a certain amount from relatives and friends. In such cases, banking institutions come to the aid of those in need, providing various loans and overdrafts.

Credit overdraft - what is it?

How does overdraft work for individuals and legal entities?

Today, a short-term loan can be obtained by both an organization and an individual. The conditions for obtaining a loan and the size of the limit are slightly different in each case.

• So, to obtain an overdraft for a legal entity It is necessary to provide the bank with documents confirming the solvency of the enterprise. With the help of the funds received, the organization can eliminate payment interruptions in its activities.

Typically, this method of providing a loan is in demand among enterprises that at some stage are experiencing a lack of money. The size of the overdraft varies from 250,000 rubles to several tens of millions, and it depends on the financial performance of the legal entity for the last six months.

• As mentioned earlier, individuals an overdraft is offered, depending on their salary. For gold card users, the maximum possible loan limit is set. Sometimes it can reach 500,000 rubles.
  In both cases, the expense of a short-term loan is repaid by constant receipts on the user’s card - be it profit from business activities or an individual’s salary.

Is it worth applying for an overdraft at a bank: advantages and disadvantages of the system

Today we can say with confidence that overdraft is one of the most popular short-term loans. However, before starting to use the loaned funds, each client should be aware of the disadvantages and advantages of this system.

What are the advantages?

• does not apply to targeted loans , so borrowed funds can be spent on any goods and services.
• To obtain a short-term loan you do not need to make collateral . Registration is easy and quick.
• Overdraft is a revolving loan , which means there is no need to re-issue it every time. A new limit on the card account opens as soon as the debt is repaid.
• Even if you have an overdraft service connected, interest is charged solely for the funds used.

Disadvantages of overdraft

• The most significant disadvantage is the high interest rate , much higher than for a conventional loan. This is due to the high risk of non-refund of funds.
• The amount of short-term loan is limited . Typically it ranges from 40 to 400% of the monthly salary.
• In case of going beyond the established limit the borrower is required to pay hefty penalties.

Thus, an overdraft is an excellent way to eliminate the problem of temporary lack of money. However, you must also remember that if you fail to repay the debt on time, you will have to pay a significant amount of money to cover the fine..

What is the difference between an overdraft and a loan?

Often, bank card users do not fully understand how an overdraft differs from a regular loan. Meanwhile, in fact, these two products are completely different.

Summarizing all of the above, we can summarize. Overdraft is a simple and affordable way to obtain a short-term loan. Currently, there is a significant improvement in loan repayment terms, as well as a decrease in interest rates, which makes this banking product even more attractive to customers. That's why to eliminate temporary financial difficulties, overdraft is a more acceptable tool than a regular targeted loan.

Russians now know a lot about loans. But the overseas word “overdraft” (also known as overspending) is not familiar to everyone. What is this loan product and who is it available to? Let's try to talk about this in simple words.

Overdraft - what is it?

Overdraft is a type of short-term lending that allows you to spend more money than is in your account. For example, in a store you don’t have enough money to pay for your desired purchase. Then the bank will automatically add the missing money to you, allowing you to create a negative account balance. In fact, this is a revolving line of credit for citizens - money can be borrowed an unlimited number of times and in any amounts, you just cannot exceed the established limit.

However, not everyone can take advantage of such a limit and not always. It is important that this service is connected to your bank card. Moreover, it doesn’t matter at all what kind of card it is – debit or credit; overdrafts can be set up on any card. The main thing is that receipts for it should be periodic.

The main difference between an overdraft and a regular consumer loan is that as soon as you have a debt (overspending on the card), any amount credited to your account will be used to pay off this debt. In a regular consumer loan, you pay a monthly fixed installment according to the repayment schedule.

Overdraft lending is available not only to citizens, but also to legal entities. Here limits are set regarding the expenditure of funds passing through the client’s current account. To register the service, an additional agreement must be concluded in addition to the Bank Account Agreement.

Overdraft is a non-targeted type of loan, which is very rare in lending to legal entities. With standard lending, they are limited in the directions of expenses and can spend funds only where it was agreed upon when issuing the loan. In addition, many loan products require the provision of a report on the intended use of loan funds. Here all this is irrelevant.

Types of overdrafts

There are 2 types of overdraft:

1. Permitted. This is the same loan for which you applied in good faith, and the bank approved the requested limit. In this case, you are using other people's money on a completely legal basis.

2. Unauthorized, which is often also called technical. Such overspending occurs without approval from the bank due to the peculiarities of the functioning of payment systems:

• changes in exchange rates - having paid in euros with a ruble card, after a couple of days you can go into an unauthorized “minus” due to rising exchange rates;
• unconfirmed transactions - when making a purchase, you focus on the free overdraft balance on the card, and later the funds are debited for a previously approved transaction;
• technical errors of the bank - for example, double debiting from the card (if the balance on the card account is less than the amount of the repeated debit, an overdraft occurs) or erroneous crediting of money to the account. In the latter case, returning the erroneous amount will also lead to overspending if the balance on the card was less than the refund.

Technical overdrafts arise infrequently, but they must be kept in mind. The cardholder must know what their own balance is in their account before using the card to make a purchase or withdraw cash. In some cases, the statement may include the available credit limit as a balance, i.e. overdraft, going into which can lead to unpleasant consequences: overdue debt to the bank.

For legal entities, the gradation will be slightly different. Here, over-limits cannot arise for technical reasons; all of them must be approved by the bank and documented.

There are also 2 types of overdrafts:

1. Unsecured - this type of lending does not require collateral. Such “overs” are issued most often, but for a period of no more than a year;

2. Secured. Here the loan term is slightly longer - up to two years, but the conditions are different. In this case, the possibility of overspending on the account is supported by a pledge of property or guarantee obligations from third parties.

Banks take real estate, securities, goods in circulation, rights to receivables, bank guarantees, etc. as collateral.

Conditions for providing credit to plastic card holders

The main condition for providing an overdraft is regular receipts to the plastic card account. This could be a pension, salary, etc. There are not many requirements for the client (they may differ slightly in different banks):

• registration in the region where the card is serviced;
• “unblemished” credit history;
• permanent employment.

To obtain appropriate approval from the bank, you need to submit an application for an overdraft and provide the necessary package of documents, which is established by each credit institution independently. Basically, they require a passport and any other document (SNILS, driver’s license), a salary certificate in form 2-NDFL or on bank letterhead. Some banks issue an overdraft without confirming your income level.

They easily replaced the salary certificate with a card account statement for the required period of time.

The term of the loan may vary, but generally these are loans up to a year. You have the opportunity to use the money provided for a whole year, but after this period the overdraft will have to be reissued.

The overspending limit is also an individual matter. It depends, first of all, on the amount of receipts into the account. In addition, each bank has its own maximum amount of overdraft funds, expressed as a percentage of the amount of receipts. For example, Sberbank sets a limit not exceeding 50% of average monthly income, while at Rosselkhozbank this maximum reaches 150%.

Perhaps the only disadvantage of an overdraft is its interest rate. As a rule, it greatly exceeds the level of interest on conventional consumer lending and starts at 30% per annum. But many banks here also accommodated borrowers halfway and established a grace period for debt repayment. So, if you return the overspent funds within a strictly specified period (usually from 30 to 60 days), then you will not be charged any interest at all.

On the other hand, given the short loan period and small amounts of debt, the overpayment, even taking into account the high interest rate, is not so high. If you express it in rubles, and not as a percentage. That is why many are accustomed to “intercepting” debt, while paying not such significant amounts.

Repaying overdraft payments, on the contrary, is a huge plus - you do not need to go to the bank or transfer funds with the help of intermediary organizations, paying interest to them as well. When the next amount of salary (pension, etc.) is received, repayment is made automatically. Moreover, first of all, the “body” of the debt is repaid (i.e. the overspending itself) and only then the accrued interest, and after all this - penalties and fines if you are late. Delays with this type of lending are extremely rare, because the next amount of income will definitely cover the debt, at least partially.

The difference between overdrafts and consumer lending

An overdraft is a loan that is easy to apply for, use and repay. This is where its similarity with ordinary “consumption” ends, and the continuous differences begin, presented in the table below.

Overdraft for legal entities

Overdraft for legal entities is provided for the purpose of replenishing working capital. That is, if the enterprise temporarily does not have money to pay for raw materials, goods, tax payments, etc. It is a preferential form of lending and is issued only to borrowers with good financial standing.

Why is an overdraft called a soft loan? This is due to simplicity in everything:

• in quenching;
• in use;
• in a short time for consideration of the application;
• the ability to take out a loan without collateral.

In order for a legal entity to apply for an overdraft, it is necessary to open an account with a specific bank and enter into an agreement for settlement and cash services. Overdraft lending is formalized by an additional agreement to the bank account agreement.

The following requirements are imposed on a potential borrower:

1. Constant turnover on the current account. If it has just opened, you will be asked for an official letter indicating the expected amounts of funds received and spent.

2. Stability of monthly turnover. The option “January – 500 rubles, February – million” will not work in every bank.

3. Lack of file cabinet No. 2 for the current account. It reflects the claims of third parties (requirements of the tax service, etc.).

4. Good credit history.

5. Good financial situation.

The credit limit is set as a percentage of the average monthly credit turnover on the account. This percentage is set individually in each bank. Turnovers are calculated for the last six months, rarely for 3 months.

The interest rate on overdrafts for legal entities is lower than on targeted loans. But in addition to it, the bank will take a commission for providing each tranche and servicing the loan account.

The loan term is up to 2 years, and the last tranche can be issued no later than 45 days before the closing of loan obligations. These terms are also set individually and depend on the conditions of a particular bank. For loans with a relatively small amount and a term of up to a year, collateral is not required.

A distinctive feature of loans in the form of “overdraft” is the requirement to maintain a certain level of credit turnover on the account. This means that the borrower must ensure monthly receipt of funds in the current account for the entire loan period at least in the amount established by the bank.

This amount is not taken “out of nowhere”, but is calculated using a formula that takes into account the actual amount of receipts. For failure to comply with this requirement, the bank has the right to suspend the issuance of the next tranche.

Debt repayment occurs in the same way as with bank cards of individuals. All proceeds are first used to pay off overdraft obligations, and any surplus is deposited in the account as a free balance. If there is enough money in the client’s current account to pay current payments, a tranche will not be provided under the overdraft.

Any loan must be taken wisely, and overdraft here is no exception. For legal entities, such lending is more of a lifesaver, but for ordinary citizens it can drive them into a real debt hole. Uncontrolled withdrawal of money from the card and an extremely easy repayment procedure greatly relaxes and dulls vigilance. Therefore, before using an overdraft, analyze all the pitfalls and avoid falling into a credit trap.