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Do the math: In times of high inflation, giving presents at Christmas becomes a costly affair
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Vitalii Petrushenko / iStockphoto / Getty Images
Christmas gifts on credit are frowned upon.
And vacation on credit, that's not possible.
But the overdraft facility is not a real loan, is it?
And that's why millions of households get knee-deep in January - after Christmas - and in June, just in time for vacation.
Six to seven million customers are said to currently have an overdraft facility.
And they pay very high interest rates for it – even more this year than in previous years.
There are at least two inexpensive solutions.
The best is to forgo the credit.
Nobody wants Christmas presents on credit.
And on a camping holiday in Mecklenburg instead of the Seychelles, you can even meet Horst Krause or Christian Drosten.
The not quite as good, but still significantly cheaper solution: A credit line at four percent instead of the overdraft facility for eleven percent interest.
This saves you more than 200 euros over the year with an average of 3000 euros overdraft facility - without any further effort.
Germany, land of dispos
Germany has the dispo, in contrast to many other European countries.
This allows bank customers in this country to overdraw their account without having to ask the bank again.
The possibility of overdraft is often agreed upon when the account is opened and makes life much easier.
Two net monthly incomes as an overdraft facility are common, sometimes three.
A life without a dispo would be a real adjustment.
When I lived in the USA some years ago, I was a bit surprised that there I had to pay 15 dollars in penalty interest just because the account was overdrawn by a few dollars.
What is practical, however, becomes a sweet poison with regular use.
To a drug that the banks and savings banks can be well paid for.
The overdraft facility is the most expensive loan in the country, often significantly more than ten percent interest per year is due, at the top even up to 13 percent.
more on the subject
Expensive account overdraft: down with the overdraft facility, out of the overdraft facilityA column by Hermann-Josef Tenhagen
And small banks in rural areas in particular often charge high overdraft interest and add a lot more if customers also exceed the overdraft facility.
At the Kreissparkasse Diepholz, for example, they then pay 18 percent interest instead of the 12.5 percent for the regular overdraft facility.
No wonder that even the federal government has recommended not using the overdraft facility and similar loans if possible: "The federal government continues to believe that consumers should avoid using overdraft and overdraft facilities as far as possible."
Therefore worrying: Bank customers in Germany have 30 billion euros overdraft and credit card debts, according to the Bundesbank statistics.
In 2022, that number rose for the first time in years.
Line of credit as an alternative
So how do you avoid the expensive overdraft facility?
In fact, some banks have introduced a kind of overdraft facility without expensive interest rates.
The product is called a framework or call credit.
What is meant is that the bank sets a fixed framework for a loan that you get.
Within this framework, the customer can overdraw the account.
The framework ranges from 1000 or sometimes 2500 euros to 25,000 or even 50,000 euros.
The prerequisite is often that part of the loan is repaid every month – one percent, for example.
Such a credit line is significantly cheaper than the overdraft facility.
Volkswagenbank currently charges around four percent interest for its credit line in the first year, and ING just under six percent.
In other words, the interest is half or even a third of the usual overdraft interest.
Credit lines are also significantly cheaper than the overdraft facility at other banks.
However, the interest on the credit line is not fixed, but variable.
They are usually based on an interest rate set by the European Central Bank.
If the central bank's interest rate rises, the bank can increase its interest on the credit line, but it doesn't have to.
If interest rates fall at the central bank, your bank has to lower the interest on the credit line.
You can easily take out credit lines from a bank other than your own bank.
Most of the time you even have to, because only a few banks offer a credit line.
However, some savings banks and banks grant credit lines to their customers, asking the house bank does not cost anything.
Otherwise, you only need a current account with a German bank for a credit line.
You must also be of legal age, live in Germany and have a job in Germany.
Having a current account and credit line at the same bank is possible, but not necessary.
Why can banks offer these loans cheaper?
Why credit lines are so much more expensive than their cheaper cousin, the credit line, is not obvious at first glance.
With both variants, banks can rely on customers to faithfully repay such loans.
The default probability of overdraft facilities or general credits has long been considered negligible.
It is usually agreed anyway that the bank could garnish the salary if problems with the loan arise.
The expensive overdraft facility cannot be due to a higher risk for the banks.
Banking lawyers suspect that the high overdraft interest is simply being used to cross-finance other checking account services.
In the case of a credit line, the banks may also check a little more closely in advance whether a customer can afford the credit line.
At ING it is said that the credit line is sometimes rejected: "For example, if the repayment would represent too great a financial burden."
If the bank has the impression that the customer's overdraft facility is getting out of hand, it can reduce it without asking again.
This happens, for example, when people lose their jobs or have to take lower-paying jobs.
Customers are then reminded of one of the difficult habits of banking, encapsulated in a quote popularly attributed to Mark Twain: "A banker is a man who will lend you an umbrella when the sun is shining, but ask for the umbrella back when as soon as it rains."
Do the math
At Christmas you shouldn't worry about loans, you've made your decisions about the gifts and can certainly live with them for another week or two.
After the holidays, however, I strongly recommend doing the math: How much did the overdraft facility actually cost me last year - and how much cheaper would a credit line be?
You can find out the costs of your overdraft facility very quickly by simply adding up the overdraft interest for the past year: the costs for using the overdraft facility are usually shown separately on your account statements every month or at the latest every quarter.
You can then compare these with offers for a credit line.
You can find a suitable interest rate calculator at Finanztip.
I wish you success!
By the way: In Anglo-Saxon countries, banks do not sell overdraft facilities, instead they usually lend money to customers via credit cards, a trend that is also gaining ground in Germany via so-called revolving credit cards.
The credit line of the card is often free for a few months, but then interest of well over 20 percent is charged.
Such credit card solutions are only a good thing if you can pay off the loan within the first few months.
Afterwards, the money borrowed via credit cards is much more expensive than the overdraft facility.
Interest rates of up to 30 percent are currently common in Great Britain.
Consumer advocates there therefore recommend - wherever possible - the complete renunciation of consumer credit.
If that's not possible, they recommend credit card shopping.
As a customer, you jump from one credit card to the next and use the months with 0 percent or very low interest.
You will be lured with a special offer.
This then works like jumping from one telephone or electricity tariff to the next in this country.
A valid strategy, just don't jump short.
Merry Christmas to you!