What is an Overdraft?

Last Updated on: 22nd November 2023, 08:10 am

An overdraft is a financial product offered by several financial institutions to those customers who need money, which is offered through the credit cards they issue. Overdrafts differ from purchases made with this type of card because they are a money transfer to the customer, and not to the account of the virtual or retail store where the purchases are made. On the other hand, they may also have a higher interest rate than credit card purchases.

Overdrafts can be requested through various channels, such as ATMs, bank branches and the Internet. In fact, depending on the channel used to receive the funds, the fees may be higher.

Thanks to the development of online banking, nowadays many financial institutions, which are authorized to provide credit products, issue virtual credit cards through which advances can be granted. In fact, several of these entities specialize in this type of product and offer it without the need to open an online banking account.

Although it may seem very useful in case of lack of cash, people who want an overdraft should be very careful, considering the high interest rates involved. In addition, if an overdraft is received for an amount higher than the agreed credit limit, the customer runs the risk of paying additional commissions and even higher rates than usual. In addition, depending on the channel used, such as ATMs, overdrafts are automatically deferred for many installments, 36 months for example, which increases the debt for the customer. For these reasons, it is recommended to take an overdraft only in a situation of great urgency and to take into account both the credit card’s credit limit and the channel used to request it.

As an alternative for many customers who do not require these types of financial products, several financial institutions offer credit-grade cards. These are very useful cards because, although they do not offer credit products, such as overdrafts, they are accepted by stores and service providers that require a credit card.

In fact, Blackcatcard payment cards stand out in the European market because they are effectively credit-card grade. This means that with cards issued by this entity you can pay for goods and services that accept only credit cards, for example you can book a hotel room, rent a car, pay for subscription services or even go on a cruise.

The advantage of credit-grade cards, such as those issued by Blackcatcard, is that you pay only with your funds. This way, you don’t have to worry about exceeding a credit limit or high interest rates when you buy something or pay for a service.

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