Ques­tions to ask about an over­draft fa­cil­ity

Inner City Gazette - - News - Ryan Prozesky, FNB Con­sumer Core Bank­ing CEO

If you are con­sid­er­ing ap­ply­ing for an over­draft, but aren’t re­ally sure how it works, there are im­por­tant ques­tions you should ask your bank, to en­sure you are mak­ing the right de­ci­sion.

Ryan Prozesky, FNB Con­sumer Core Bank­ing CEO, says an over­draft is an im­por­tant credit fa­cil­ity to help you man­age your per­sonal cash flow in the event that your bank ac­count runs out of funds.

“It can come in handy to en­sure that im­por­tant debit or­ders, such as a home loan or in­sur­ance pre­mi­ums, are al­ways hon­oured, when you use up all the funds in your cheque ac­count, due to un­fore­seen ex­penses,” says Prozesky.

He ad­dresses key ques­tions that con­sumers should ask about an over­draft fa­cil­ity: Do you qual­ify by de­fault as a

cheque ac­count holder? – the ap­proval of an over­draft fa­cil­ity is sub­ject to an af­ford­abil­ity and credit as­sess­ment. The as­sess­ment de­ter­mines whether the bank ap­proves the ap­pli­ca­tion, as well as the size of the credit limit.

How­ever, banks of­ten pre-ap­prove se­lected cus­tomers with a good credit pro­file to make it eas­ier for them to ac­cess the over­draft fa­cil­ity. For ex­am­ple, FNB al­lows pre-ap­proved cus­tomers to con­ve­niently take out an over­draft with­out the need for pa­per­work through On­line Bank­ing, the FNB Bank­ing App, Cell­phone Bank­ing and ATMs.

Will I need a sep­a­rate ac­count?

– the fa­cil­ity is linked to your cheque ac­count, mean­ing that you do not need to track or man­age the over- draft in a sep­a­rate ac­count.

When do I start pay­ing in­ter­est – you will only start pay­ing in­ter­est from the time you start us­ing the fa­cil­ity. The in­ter­est will only be charged on the amount you have used.

Fur­ther­more, the in­ter­est rate is per­son­alised based on your in­di­vid­ual credit pro­file.

How do I pay for the amount I owe – the bal­ance you owe will be re­duced when­ever your salary is paid into your bank ac­count. How­ever, the bal­ance in­creases as you use the fa­cil­ity.

Can I set­tle my over­draft ear­lier – when you de­posit funds into your ac­count the bank will deduct the amount you owe as well as the in­ter­est due.

What hap­pens if I no longer earn a salary – con­sumers can take out credit in­sur­ance to cover the debt, in the un­for­tu­nate event that any­thing hap­pens to them.

“It can come in handy to en­sure that im­por­tant debit or­ders, such as a home loan or in­sur­ance pre­mi­ums, are al­ways hon­oured, when you use up all the funds in your cheque ac­count

For ex­am­ple, FNB of­fers an Over­draft Debt Pro­tec­tion plan which cov­ers your out­stand­ing bal­ance in the event of death or per­ma­nent dis­abil­ity and your min­i­mum in­stal­ments for up to 12 months in the event of tem­po­rary dis­abil­ity or un­em­ploy­ment/in­abil­ity to earn an in­come. Cus­tomers who fall into fi­nan­cial dif­fi­culty are en­cour­aged to con­tact their bank to make a suit­able re­pay­ment ar­range­ment.

Many banks have the abil­ity to grad­u­ally re­duce your over­draft limit over­time to help struc­ture a re­pay­ment plan.

“With any form or credit, the onus falls on the con­sumers to use it re­spon­si­bly and al­ways en­sure that their fi­nan­cial com­mit­ments are hon­oured on time, to avoid be­ing heav­ily in­debted and even­tu­ally ham­per­ing their credit pro­file,” con­cludes Prozesky.

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