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The call loan: low-interest alternative to the overdraft facility

In today’s fast-paced world, you need money for some purchases. If such a case arises, most of them either use a disposition loan (short overdraft facility) or opt for a standardized installment loan, which is already offered by most specialist stores in addition to the banks. The advantages of an installment loan are that the borrower knows not only the loan term but also the monthly installment amount. In this way you can always calculate optimally. The advantages of the overdraft facility, which is granted with a regular receipt of money in the checking account, lie in the flexibility, because it can be covered quickly with incoming payments. However, the overdraft facility is also the most expensive loan with interest rates between 12 and 15 percent.

However, both overdraft and installment loans can be handled with an on-demand loan (also known as a framework or on-demand loan). It works as follows: The bank grants the customer a certain credit line. This is usually between 5,000 and 25,000 USD. Depending on requirements, the borrower can now use any amount of this. For this, the borrower needs a so-called reference account. The bank transfers the required amount there, and the borrower withdraws this amount from the reference account. The advantage is in particular that a call credit is generally not tied to parallel account management.

Further advantages lie in the fact that the loan is provided on a free basis and the interest accrued is also significantly lower than that of an overdraft facility. This is also shown by our call credit comparison. In addition, this interest only has to be paid for the loan amount actually used. Therefore, an on-demand loan – particularly because of the low interest rates – is also ideal for balancing an existing overdraft facility. However, borrowers should never use both financing options simultaneously. This means that the overdraft facility should not be exhausted in advance and then an on-demand loan should be taken out. The quick way into the debt trap would be too big here.

Call Loans in Comparison

Call Loans in Comparison

With our loan calculator you can compare the interest rates of the call loans of different banks with each other for any loan amount and thus secure the cheapest interest:

An on-demand loan is also indirectly suitable for real estate financing. Anyone who has experience in real estate financing knows that it is difficult to calculate all of the total costs in advance. The costs are always fixed when a construction phase has been completed. Even architects or property developers are not always able to provide 100 percent financing. One or the other item quickly becomes a little more expensive, and it quickly becomes apparent that – for whatever reason – additional work becomes necessary that could not be taken into account beforehand. All factors that can push the price up quickly. The same naturally also applies to unforeseen construction delays or increased material costs. Or you choose the more expensive variant in the sanitary area – after all, you only do it once in a lifetime. The budget is quickly exhausted here – funds that are now missing for other important errands.

Now it makes no sense to set the total costs 20 or 30 percent higher and then take out a mortgage loan. On the one hand, you don’t know in advance how much money is needed at all, and such 130 percent financing would be far too expensive. The call loan is then suitable for this intermediate area. The customer now has the option of concluding a loan contract with his bank – for example over 45,000 USD. The bank makes this loan amount available to the customer free of charge. Account management is also free in most cases. The customer pays interest on this, but only in the amount of the loan that is actually used. If the customer only needs 25,000 USD of the 50,000 USD, he only pays his interest for this amount.

On-demand borrowing thus serves as an important buffer for times when things get really tight. If you need a new washing machine or even a new car, you shouldn’t have to cancel your fixed-term deposit account right away. The individual credit line is measured according to the creditworthiness of the borrower, there is no fixed term. There are no fees for the conclusion or use. The borrower also determines how much money he pays back. As a rule, the banks offer the borrower two alternatives:

  • monthly repayment of the individual credit limit with 1.5 or 2 percent
  • Repayment of the loan amount actually used at 2 percent

This “borrowing on demand” is now also offered by pure direct banks over the Internet. Borrowers (private and business customers) should therefore make use of the option of using an unlimited call credit instead of an expensive overdraft facility for checking accounts. With a call credit, the borrower can deal with suddenly occurring financial burdens in a much more uncomplicated manner and thus remains solvent. In addition, the borrower is not bound by any conditions regarding the use of the loan. So he always has the opportunity to freely decide on the use of his financial resources. Account holders who also frequently overdraw their accounts are cheaper to use on-demand loans.

In addition, this type of loan should only ever be seen as an alternative to overdraft facility and never as an addition; the risk of overdrawing your entire financial framework is too great. Borrowers should therefore only ever choose one of the two options. Anyone who opts for an on-demand loan also has to show budgetary discipline, because the borrower cannot be “forced” to repay his loan. However, this in turn means that the loan should not suddenly be forgotten, rather it can be attributed again on a “voluntary basis”.

Before concluding the contract, the credit contract should be examined in detail. What is important above all is a clear regulation of how the loan should be repaid. This emerges from the so-called redemption provisions. The term and the loan rate play a particularly important role here, because the longer the loan term and the lower the rate, the more expensive the loan will ultimately be. The monthly premium amount of the residual debt insurance, with which the bank protects the customer against death or unemployment, is also important. This is of great importance because exactly this insurance premium is also co-financed through the loan.

Advantages and disadvantages

Advantages and disadvantages

Anyone who has a regular income relationship and only has a short-term need for money can travel with an on-demand loan far more cheaply than would be the case with an overdraft facility. The provision of the loan is also free of charge; the loan itself can always be obtained at low interest rates. The call-off loan is also extremely flexible with regard to repayment. The on-demand loan is not only granted to consumers, but also to freelancers and the self-employed. The bank for the call loan can be chosen freely, whereas the current account can be left with the house bank. The disadvantage of an on-call loan is its variable interest rate. If interest rates rise on the market, the bank passes this on to the customer and the agreed interest rate can increase. As interest rates can rise and fall during the repayment of the loan, this ultimately adds to the confusion of this form of financing.

The installments are also set for a regular loan, and there are also provision costs. Early repayment of the loan is also out of the question, as this usually involves high fees. In the case of a call-off loan, on the other hand, the provision of the loan amount is free of charge, and there are no further fees for account management. The borrower is flexible in his repayment and can also pay it off prematurely – accordingly free of charge. Since the interest on call loans is similar to that on installment loans, the borrower always benefits from low interest rates. After all, almost 50 percent of credit costs can be saved compared to the conventional overdraft facility.

In the case of a call credit, the call for credit is made either by cash payment, by transfer, by standing order, by direct debit or by using an EC card. The interest is charged when the account is closed. Borrowers should contact those banks that do not charge an additional current commission when the call credit is made available in the account! Such a commission is completely unusual! When determining the loan amount, the customer’s creditworthiness and the respective conditions of the bank are also taken into account, as well as the monthly income and the fixed assets of the borrower. With regard to the repayment of the loan debt, the borrower can – depending on the financial situation – pay it partially or in full.

The flexible call credit also offers a further advantage when it comes to building finance. In this area in particular, the total amount of financing is often not due in one go, but partial payments are made depending on the construction progress. If the builder takes out this loan at an earlier point in time than is actually required, the calculation of the interest begins earlier. The builder must pay for all of these costs at an earlier point in time. An on-demand loan can circumvent this negative aspect. This now gives the borrower the option of not having to pay the full amount of the loan right from the start. The borrower can also call up the relevant contributions from his loan whenever the house building companies send him their invoices.

This fact shows how important it is to have a clear understanding of what forms of borrowing there are, how expensive a loan is and, above all, what costs the borrower has to pay each month before signing the contract. If you take this into account, you can differentiate accordingly – between reputable and dubious providers in the industry. Furthermore, even if a bank makes apparently generous offers, you should always make sure that the (additional) monthly charge can always be met over the entire agreed term. And by the way, this rule applies to all types of credit – including online loans, installment loans, personal loans, consumer loans, variable loans or on-demand loans.

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