Consumer loans vs. overdraft – what is what?
It may happen that you end up in a situation where you need to cover some expenses that you cannot pay for your own pocket. In such a situation, you may benefit from a consumer loan or a cash credit . However, before you decide, it is important that you familiarize yourself with which one is best for you.
You will receive a loan through one payment and withdraw over a certain period. A credit is an extra amount that you have available and can take advantage of when you need it. An overdraft can be a financial safety net, but it can also put you in debt. It can actually end up being a more expensive solution than a consumer loan.
Here we will explain everything you should know about consumer loans and overdrafts, as well as the benefits and disadvantages of both.
Here you can see what you can read about overdraft and consumer loans on this page:
- What is a cash credit?
- What is a consumer loan?
- What shall I choose?
What is a cash credit?
An overdraft facility can be either a bank overdraft or a bank overdraft online . Besides being of two different types of lenders, these two loans are quite different products.
An overdraft facility in the bank acts as a granted overdraft , whereby you can withdraw from the account through agreement with the bank – up to a certain amount. An online cash credit, on the other hand, is a loan that has no maturity, the full amount being paid directly to your account.
Here we will go into the two concepts in depth, so that you can distinguish between the two products and thus put you well into what is the best solution for you.
Cash at bank
This type is a loan where a credit is made available to you that you can withdraw from and make a committed overdraft with.
That is, you get the opportunity to make an overdraft on your account without the bank blocking your credit card. The overdraft facility can be linked to a separate account or your salary account, so it acts as an economic buffer.
A bank overdraft facility differs from other types of debt, as you do not pay off in the same way as if you go out and take out a loan. You will only be charged interest on the share you have used for the overdraft. If you do not use any of your overdraft facilities, you will not be required for the full amount for which your overdraft facility is approved.
An economic buffer is a sum of money that you have saved in order to help yourself out of difficult financial situations. If you suddenly become unemployed or face a huge unexpected expense, this can help you not end up in deb
Advantages and disadvantages of a bank overdraft facility
The cashier’s credit is a more flexible tool , as you decide how much you want to make use of it. What is the cheapest cash credit is therefore hard to say.
It is a more long-term solution where you predict that you may need to withdraw money over sometime in the future.
For example, if you link your credit to your payroll, you can make your debt less each time you receive your salary. You also do not have to pay a fixed monthly payment for your bank overdraft in the bank that you need to know about a typical consumer loan.
Cash credit benefits in bank
- Financial buffer
- Flexible installments
- Interest rates that are governed by your consumption
- Works as a granted cover
Disadvantages of bank overdrafts in banks
- High interest rate
- Requires a lot of thought and planning
- May result in large debts
- Longer process
- Construction fee
An online overdraft facility is a newer form of loan that can easily be confused with the classic bank overdraft facility. Here, the entire amount is paid to your account without maturity, shortly after you apply for the loan. Online overdraft facilities are therefore not limited by a 48 hour reflection period as a consumer loan is.
An online overdraft facility has a monthly minimum interest rate, which is based on a percentage of the loan. It basically works like a bank overdraft facility – you pay interest based on how much of the overdraft you use. As I said, the entire credit is paid out in one total amount , so in theory you pay for the entire credit until you have paid off some of it.
You can pay the online cash credit all the way when you want and can afford it. This means that the price is largely dependent on how much you want to borrow and how quickly you can repay the money. You can compare prices for various online credit card providers at Mikonomi.dk.
Advantages and disadvantages of an online overdraft facility
With an online cash credit you can get money in the account very quickly, because there is no reflection time as with ordinary loans. However, the credit ceiling for these loans is lower than for consumer loans. It may therefore be better for you to take a consumer loan if, for example, you have to borrow more than SEK 15,000 .
It can be a very tempting opportunity to have a credit card available so quickly. Since the loan has no maturity, you need to pay close attention to whether you really need an online overdraft facility – or whether a consumer loan better meets your needs. Otherwise, you risk ending up in debt .
In addition, you must also pay a fixed monthly service to maintain your online credit card. If you are not going to spend a lot of money and for a relatively short period of time, an online overdraft can therefore be the solution for you.
Advantages of Online Cash Credit
- Quick payout
- No reflection time
- No maturity
- Fee and interest free the first 30 days for new customers in certain places
Disadvantages of online overdraft
- May be tempting to have a lot of money lying down
- Lower credit ceiling
- Fixed monthly payment to maintain your credit card
What is a consumer loan?
A consumer loan is a loan that is mostly used in connection with the purchase of consumer goods . It can be anything from home to travel, payment of deposits, bills, car, wedding and everything else you can call consumption. The loan can both be admitted to the bank, but a large number of loan companies offer you this type of financing online.
It is with the consumer loan in the bank as with all other types of private loans that you often have to meet with your bank adviser and explain the purpose of your loan – you do not need it with online consumer loans .
You must of course be satisfied with the loan agreement that you agree to. Through Lånio.dk you can let the banks compete for you as a customer, so you can get the best possible loan.
Advantages and disadvantages of a consumer loan
The primary benefits of consumer loans are related to their lower requirements and quick payouts . Often you can be allowed to borrow as an 18-year-old and with relatively low demands on your finances. Don’t spend time talking to a bank advisor just to know you’re not eligible for a loan.
However, consumer loans through online providers often have a higher interest rate than similar loans in the bank. You pay for a higher interest rate, as the loan providers run a greater risk by borrowing money with lower requirements.
As a starting point, you also do not need to provide collateral or pay out with a consumer loan. As mentioned, it is these lower requirements that make consumer loans a popular solution when you have to borrow money here and now.
Consumer loan benefits
- Fast loan process
- Low requirements for the borrower
- Can be used for all loan purposes
- Large loan amount
- No requirement to provide security
- Must not be paid out
Disadvantages of consumer loans
- May have high overall costs
- Higher interest rates
- High APR
Cash Credit vs. consumer loans – what do you choose?
We hope that you have become more aware of what a consumer loan and a credit facility is and that we have helped you make the right decision. It can be hard to find out which of these loans is the best for you.
The cash credit can be a solution if you just want the opportunity to pull over and an economic safety net. If you need some money with shorter notice, a consumer loan is a better solution.
If you have more than one loan or are thinking of taking more, such as a consumer loan and an online overdraft facility, then you can consider a collectible loan . That way, you can collect your debts and pay off on a single loan with one monthly benefit and one monthly fee rather than more – and save money in the process.