There are two main types of bank accounts. We have a checking and savings account. A checking account allows you to keep the money for your everyday expenditure and the funds are accessible any time of the day. Checking accounts come with debit cards that you can use for various transactions. Sometimes you can run out of funds and may require an additional amount called overdraft. But how much can I overdraft my checking account?
Today I want to talk about overdraft and how much your checking account can give you to cater to the deficit. An overdraft is an extra money on top of your balance that completes your transaction. You withdraw $1000, but you have $900 in your account, but the bank allows you the $1000 anyway. The overdraft here is $100. In most cases, financial institutions charge interest on the borrowed amount and automatically deduct it from your account once you top up.
Some financial companies offer what we call overdraft protection. They allow you to link your checking account to other bank accounts so that when you run out of money, you can use the other accounts to fund your transactions. That way, you avoid fees, if they exist, plus the interest that accompanies the overdraft. Almost every financial institution offers overdrafts to eligible customers.
Eligibility For An Overdraft
Since it is like a loan, you must possess good credit history to get one. Banks, like loan limits and lines of credit, usually give you an overdraft limit depending on your creditworthiness. If you possess a poor credit history, you are not likely to get a loan. Financial companies consider your age and total monthly earnings apart from your credit rating.
To cut the story short, you have to ensure that you use your bank account properly to make sure that you gain good credit scores. The better your credit scores, the higher your loan limit. And by the way, when you have a good credit history, you can even benefit from other services such as instant ACH transfer with no verification, credit cards with low-interest rates and higher limits, and even loans without guarantors.
Apply For An Overdraft – The Process
You can either apply or get it automatically if you transact higher amounts than what you have in your account. In most cases, banks give you an automatic overdraft if you are doing a transaction and have less money. Therefore, you do not need to apply.
When getting an overdraft, a financial institution will always ask you if you would like to continue with the overdraft or not. You should agree with the terms and conditions to get the loan. Some banks charge you a certain amount of money daily once they give you the loan, while others charge you a one-time percentage of the amount you have borrowed.
If you have to apply for an overdraft, financial companies allow you to apply via online banking, mobile banking app, over the phone, or in-branch. Using online banking or banking apps is the most convenient application way.
You may receive a response immediately or after a few days. You need to notice that you can get an overdraft on any transaction. For example, when you want to transfer money from Bank of America to Chase, and you have less money, the Bank of America can top up the remaining amount to cater for the transfer.
The Way To Repay Your Overdraft Loan
There is no specific plan on how you can repay your loan. Unlike other kinds of credits, an overdraft is payable any time and with any means. If you take one today, you can repay it tomorrow or even later in the day. Unlike some loans from banks and credit unions that charge early payment fees, overdraft loans do not work that way. The earlier you pay the better.
If you want to make issues easy, you should repay before things get out of hand. It is better to keep getting overdrafts now and then instead of defaulting, as this can result in poor ratings and even get listed in the ChexSystems.
And by the way, you can repay your debt in bits and not necessarily the whole amount. If you have some funds in a savings account earning minimal interest rates, you should save yourself from hefty fees by using the money to repay your debt.
Since deductions usually are automatic once you recharge your account, you can even repay by sending money from another account to your account. We have banks that accept ACH transfers and even wire transfers. That makes it easy to move money from such accounts to your bank account.
How Much Can You Overdraft Checking Account
There is no specific limit you can borrow from your bank or credit union. The amount of overdraft you can get depends on your creditworthiness. The better your credit scores, the higher your loan and vice versa. If you repay your debt on time and in the right amount, you can get an increment.
Talking of credit scores being the determining factor, if you have no credit scores, you are not likely to get an overdraft whatsoever. The more you continue transacting with your account, the higher your limit.
Thing Will Happen If You Cannot Repay The Overdraft Debt On Time
If you cannot pay your debt on time, you should consider a money transfer credit card. The credit card allows you to transfer funds directly to your bank account from a credit card. You can use such cards to move overdraft to the card with a 0% interest within a period, usually between 12 and 36 months. You can then utilize the duration to pay the debt other than living it to accumulate a lot of interest.
You can repay the card debt after every two weeks at the end of the month or use any other convenient schedule. Just make sure you adopt a consistent payment plan and commit to it. Also, make sure you do not use the card to make any payment until you finish repaying the current debt.
Can You Use An Overdraft To Make An International Transfer
Banks can allow you to use overdraft even if you are making an international transfer. For example, you can get an overdraft to cater for the extra amount when doing the Bank of America international wire transfers and running out of money.
Also, when sending money abroad using money transfer services such as Western Union, MoneyGram, Wise, and so on, you can use an overdraft from your bank to fund the transaction.
Final Thought
An overdraft is the amount of money your bank or credit union allows you to complete a transaction when you have insufficient funds. To get one, you must have a credit history. The amount you get depends on your creditworthiness. If you have good credit scores, you can get higher limits and vice versa. Overdrafts work like lines of credit in that they are revolving. You can borrow again and again so long as you repay your debt.
