Consumers can be overdrawn on a current account, but also have access to a cash reserve on a card. This is also referred to by the name credit opening . There is of course a difference between the aforementioned types of credit, but there are also agreements with regard to interest rates and flexibility. If there is talk of a credit opening, it is seen as a flexible form of borrowing money . The consumer usually has more freedom and options with regard to repayment compared to, for example, a personal loan .
Simulate your loan
What amount do you want to borrow?
What payment term do you want? (months)
One of the characteristics of flexible borrowing is that there is a credit ceiling. The consumer always has the option to borrow up to the credit ceiling and can also withdraw repaid amounts in this way. The credit ceiling is determined, among other things, on the basis of the applicant 's income . With a money reserve, there is no question of an end date of the loan agreement and in that respect it can also be referred to as infinity.
There is therefore no fixed arrangement for repayments in installments, because this can differ from month to month and depends, among other things, on how much money has been withdrawn from the cash reserve. Moreover, the annual cost percentage is only calculated on the debit balance and, as stated, credit that has been repaid can be used again.
Types of credit opening
The red on the current account is permitted by the bank and offers a solution, for example, if an amount is needed and the wages will only be paid in a few days. Interest is charged every month on the amount that is overdrawn. This percentage can be high and it is therefore recommended to make up for the overdraft as soon as possible.
With a cash reserve in the form of a revolving credit , there is the possibility of withdrawing money up to the credit ceiling. Interest is charged monthly. With cash reserve on a card, there is, for example, a credit card. This allows purchases to be made that will not be debited from the account until later, but which do involve additional costs.
There is another form of credit opening and that is the store credit . A well-known example of this is an online department store, where orders are placed and with which you can shop for a fixed amount.
A credit opening or cash reserve may offer a lot of flexibility, but that also has a downside. For example, the interest is usually higher compared to other forms of credit. Moreover, there is usually a variable interest rate. This offers an advantage at a low interest rate, but at a high interest rate it must also be possible to meet Demorei liabilities.