Personal Overdraft Agreements let you feel at ease knowing that if for some reason your bank account is at zero and you need to purchase something, you have a predefined amount that the bank automatically lends you when you issue a check or use your debit card for making purchases.
The amount you spend (up to the overdraft limit) will only charge interest as long as you don't cover for it with a deposit. If you deposit the amount the next day or a few days later, you'll only be charged some cents. It is an ideal solution for emergencies and the costs are extremely low.
Overdraft Agreements Are Personal Lines Of Credit
The nature of overdraft agreements is discussed. Unless there is a special arrangement with the bank, the overdraft agreement is an unsecured loan. But, given the revolving nature of the loan amount, truth is that they are much alike personal lines of credit. It's just like a home equity line of credit only it is unsecured and for smaller amounts.
Being unsecured, it's strange that the interest charged is significantly low. This is mainly due to the fact that the overdraft agreement amount limit is small enough to be considered of no risk. The amount can range between $300 and $2000 so the bank has nothing to worry about and thus charges interest rates around 8% to 15% depending on the borrower's credit history with the institution.
How They Work?
The way overdraft agreements work is rather simple: Once approved an overdraft agreement is immediately associated to your bank account. From then on, your bank account will report a balance, an overdraft agreement balance and the overall money available. For example: If you have $500 deposited into your savings account with an overdraft agreement of $1000, then you'll have $1500 available for withdrawal, issuing checks or paying with a debit card.
Once your own money is used up, your overdraft agreement begins to be used and any amount debited from your account is deducted from the agreement's limit. Any amount over the limit and up to 10% over it (when the account is blocked) will generate additional higher interests in the form of penalty charges. As soon as you repay the total or part of the agreement's amount, the money will be available again when you need it.
Where To Get Them?
You can easily get an overdraft agreement for your savings account by contacting your local bank and requesting it. Provided that you have a steady income and a good credit history with the institution (no credit check is needed) you'll surely get approved for at least $300, higher amounts may require some checking of your overall credit history.
Some banks offer accounts that already come with an overdraft agreement for a little maintenance charge or fee. Moreover, sometimes these agreements come along with a whole account package that consists of a saving account, a checking account, an overdraft agreement, one or more credit cards and a pre-approved personal loan for a certain amount that you can obtain without having to fill any paperwork (sometimes even through the ATM)
