There are various forms of credit available to consumers, and with what is predicted to be a tough year ahead, making use of an overdraft facility, could be a good way to manage your cash flow and get you through the year.
“One of the best solutions to a temporary cash flow problem is an overdraft facility,” says Jo-Ann Du Plessis Head of Pricing and Product for Value Banking Solutions at FNB. “An overdraft facility is a credit or borrowing facility that is attached to your cheque account. It allows your cheque account balance to enter a negative position, up to an agreed limit. It provides you with extra funds directly from your cheque account, which is then repaid on a monthly basis by any deposits coming into your account, such as your salary.”
1.Protecting your credit record
Rather than to leave your debit orders to bounce or pay one debit order this month and another next month, an overdraft facility can be used as an aid for when you do not have sufficient funds in your bank account. The facility will assist with payment of debit orders and other transactions you might need to make. This will protect your credit record and also prevent you from incurring bank fees such returned or unpaid item charges.
2. Qualifying for an overdraft
Whilst applying for an overdraft is fairly easy because it doesn’t take time and can be done online, the truth is not everyone qualifies for an overdraft facility. “The qualifying requirements for an overdraft are just as stringent as when you apply for any other credit. The bank will gather data from your behaviour on all your banking products as well as data from credit bureaus to assess your risk profile,” explains Du Plessis, “ following this an affordability assessment based on your monthly income and expenses will be conducted to determine your ability to repay the overdraft on a monthly basis. If you pass the risk scoring and affordability assessment only then will you be offered the overdraft facility,” says Du Plessis.
3. Managing your credit efficiently
“As with all credit, it helps to maintain a good payment history when you have an overdraft” says Du Plessis, “this will be good for you in the long run and will ensure that your risk profile is low and that you continue to be seen as a reliable borrower.” Du Plessis suggests the following tips for efficient management of your credit facilities:
- Have an appropriate overdraft limit that can cater for all your transactional needs in case of an emergency. Having an insufficient limit could lead to returned or unpaid items; that being said, having a large a limit could tempt you to spend unnecessarily.
- Plan well; always ensure that you have money saved for emergencies and other unplanned expenses.
- Ensure that your salary is deposited on a monthly basis in to the account. This will prevent the overdraft from going in to excess.
- Keep a good credit profile; the better your credit risk score the better the interest rate provided to you, behaviour such as not paying your bills within the specified time will negatively affect your credit rating
- On your finances in general – remember to keep your expenses low so that you have enough money for the bigger more important debts
“Whilst an overdraft can save you when times are hard, it is important that you never reach the point where you are using credit to pay for your monthly living expenses. If this is happening to you often it is an indication that you are not coping with your expenses and that your finances may very well be in trouble, which is not an ideal situation to be in,” concludes Du Plessis.
