Almost everyone with a regular income and a checking account has ever made use of a credit line . Often he is a savior in financial distress, but can quickly become a trap. Not a few customers owe the disposition credit someday in a installment loan, so that the account is not permanently in the minus. This is often caused by the amount of the disbursement credit granted. Not infrequently, account holders can access a loan amount of two or more monthly salaries – often the banks also tolerate an additional overdraft facility. A discretionary loan can therefore be a virtually bottomless foothold for the borrower.
The disadvantages of a disposition credit
The fact that the credit line can sometimes become a trap for borrowers is mainly due to these negative characteristics:
– Some banks give in on discretionary credit without informing the customer.
– For the provision of a credit line , the bank usually has a proven, regular income.
– In addition to the disbursed amount, banks often also allow an overdraft facility.
– There is no fixed interest rate on a repayment credit . It varies according to market interest rates and is very high compared to other forms of credit.
– Interest will also be calculated on a daily basis. The longer the loan has not been paid off, the more interest is due.
– When using the disposition framework by the borrower, the lien specified in the general terms and conditions of the banks applies. If the credit line is not balanced in the long term, the lender has the right to seize the sum of other accounts and deposits of their customers.
– Since no credit agreement is concluded, no monthly installments are due for a discretionary credit, so that the customer has only slightly control over the used total.
But a credit line also has advantages
The strengths of a disposition credit are clearly its flexibility and availability, from which not least its name derives. A credit line is ideal for short bridging times. Or to easily pay for more expensive purchases without first applying for an installment loan linked to collateral.
However, the flexibility of the MRP does not end when used. The repayment is also adjusted to the financial situation of the borrower. It determines the repayment installment and maturity itself. Thus, the borrower can avoid excessive monthly burdens and make the rate variable. The customer can adapt the repayment modalities to his possibilities. Under certain circumstances, however, it may make sense to replace a disposition loan with a lower-interest installment loan in the form of debt restructuring.