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Date: April 2, 2020
By: Ronald Gracia

Being in the red: an expensive service for customers

According to the Nibud information institute, the bank account of 40 percent of Dutch households sometimes falls into the red (update: 2019). The combined overdraft of all consumers fluctuates around US $ 9 billion on an annual basis.

For some, being in the red is a temporary and handy helper, but others get into serious financial trouble because of it. The interest rates do not lie: consumers pay for a overdraft on their current account, interest rates ranging from 9% to 12.9%.

De Nederlandsche Bank (DNB) recently sounded alarm bells: one in seven Dutch people is unable to collect 2000 us dollars within a month (from savings or what is left after salary rounds). The same research also showed that many people see overdrafts as a 'solution' to financial setbacks.

Overdrafts do not stretch your salary

Being in the red is (still) very common and is often not seen by customers as a loan. Still, the negative balance is not intended to extend your salary or as an eternal extra pot. In fact, standing in the red was only invented as a temporary safety net when people are short and / or have to make an extra expense.

Then there is the credit card. Customers can further stretch the limit on their bank account by attaching credit card debt to it. Since a bank account (plus limit) and a credit card are two different products, the bank keeps them separate. But the debt does add up. Being in the red is also very easy to set: via the website or the app of your bank, the option 'being in the red' is already turned on with one click.

Suppose someone has a limit of US $ 2000 in the bank account plus a credit card with a US $ 2500 limit. If both facilities are used to the full, a debt of USD 4,500 will arise in no time. Without alarm bells ringing at the bank - after all, this is a very common 'service'.

Overdrafts may last for a maximum of three months. After that, the bill must end up in the black again. ING, Rabobank and ABN Amro say they can prevent problematic overdrafts by including in the conditions that customers show a positive balance for one day at least once every three months. That seems like a great incentive, but what will happen in the remaining time? Almost three months in debt at an interest rate of 9% to 12.9%, by one day in the black ...

In connection with the corona crisis, many banks temporarily lower their interest rates in the event of overdrafts on their current account. As of April, customers at Rabobank, ABN Amro and ING no longer pay 12.9% but 9.9%. SNS drops from 11% to 9%; Regiobank and ASN already applied a debit interest of 9%.

BKR registration

Apart from the high interest on overdrafts, there is another reason to be careful with credit on your checking account. An overdraft is a credit facility, which means that interest must be paid and that can be at the expense of your financial strength. That is why the BKR registers all credit facilities of 250 us dollar and higher.
What does that mean? Even if you never make use of your overdraft facility, the facility does count when, for example, taking out a mortgage. You can borrow less for your dream home. Anyone who is in arrears (more than 3 months in the red) will receive a negative BKR registration and may not take out a mortgage at all.

So being in the red seems like an innocent and trusted option for some extra financial flexibility. But it costs a lot of money (high interest), is not properly monitored by the banks and also results in a BKR registration. That can be done differently.

Taking out a loan: more responsible than being in the red on your bank account

Many people are still a bit hesitant about taking out a consumer credit, such as a Personal Loan . A loan seems like a financial block in the leg for years and you have to provide all kinds of data for it. This requires a different mindset, which is coupled with consciously handling money and borrowing responsibly.

Nevertheless (or precisely because of that?) The conditions of a Personal Loan appear to be much better than those of being in the red on your checking account:

  • The interest is now historically low: from 3.9%. A big difference with interest rates from 9% to 12.9%!

    Now that the interest on overdraft is temporarily lowered to 9% - 9.9%, it is good to know that the interest for a personal loan is securely fixed for the entire term. With us you take out a Personal Loan from 5,000 us dollar with a safe fixed interest rate from 6.2%.

  • You will receive an agreed amount on your account once. After that, the repayment starts immediately. This means that your debt is highest at the time of closing and decreases monthly thereafter. This is in contrast to overdrafts, where the debt remains flexible and can cause unrest.
  • You know exactly when your loan has been repaid, in contrast to the 'open end' of overdraft.
  • Additional repayments in between is always allowed and penalty-free. Additional amounts repaid may not be reinstated. The result? You get rid of your debt even faster.
  • Transferring or merging other (expensive) loans to a Personal Loan is possible. An example: you borrow USD 5,000 via a Personal Loan and pay off your overdraft and credit card debts in one fell swoop. At a much lower interest rate and with a clear end date.

In summary: a Personal Loan is aimed at allowing consumers to borrow as responsibly as possible. Borrowing money is no shame, as long as you can bear the burden of the repayment.

At Snaploan Online you can compare loans from our five partner banks . Most of our partner banks currently offer the lowest interest rate in the Netherlands . You will immediately receive a realistic proposal, based on your data and strict laws and regulations.

Wondering whether a Personal Loan is also a good option for you to borrow money responsibly? Or to repay expensive loans with other parties in one go ? View how much you can borrow here or request a quote without obligation.

Ronald Gracia

Partner and Head of Acceptance

Author: Ronald Gracia

Michel is a real all-rounder. He knows everything about credits. Whether it concerns a personal loan, a revolving credit or a combination credit for consumers, you have to go to Michel. Michel is friendly, patient and always has time for a chat or a listening ear. '

Specialization within Snaploan Online - Acceptance of applications, issuing via e-mail and My SNLO of the overviews containing the possibilities of our partner banks.

'I make sure that you can compare all options at a glance and that you can make the right choice. I think it is really important that you take out a loan that suits your needs. '

Request a quote without obligation