*By Simone Costa.
Overdraft is a credit transaction. Yes, it’s true, when you use the overdraft the bank lends you money.
Although it is available in your checking account, it is a loan that is “pre approved”. Therefore, the asset is not yours, it is the financial institution. You can tell me it’s obvious. If you don’t use it, great, but for you who treat the overdraft as a salary supplement, here’s a warning! This feature isn’t available for free, there’s a built-in interest rate when you use it, and it’s not cheap.
Overdraft is intended to cover financial transactions when there is no available balance in the account. It is recommended for very short-term use in an emergency. After use, it is recommended that you pay immediately, i.e. make payment “cover” the account thus minimizing the costs incurred in such use.
This name “check” it is not “printed check” that we know. According to the Central Bank, the overdraft is a line of credit contracted with the financial institution, linked to the demand deposit account, and which can be used to cover payments of bills, slips and checks, cash withdrawals, transfers of resources, debits into account , among others.
The granting of this line of credit takes place through a contract which must contain all the information and costs necessary for the customer. Each financial institution, on the basis of the defined credit policy, may or may not grant this credit line to the customer; it will mostly depend on your financial history and relationship.
Financial institutions cannot charge a fee for granting overdraft lines. According to the Central Bank, the Plenary of the Federal Supreme Court, in the judgment of the Direct Action of Unconstitutionality nº 6.497, declared unconstitutional the article 2 of the Resolution 4.765, of 2019; therefore, financial institutions cannot charge individual customers and individual micro-entrepreneurs fees for providing an overdraft limit, even when the limit exceeds R $ 500.00 (this charge was already suspended as of 04/30/2020 by virtue of a injunction.
For usage follow-up, financial institutions must disclose the information in the statement. According to the Central Bank, the minimum mandatory information for reporting provided to natural persons and individual micro-entrepreneurs (MEIs) is:
- contracted credit limit;
- balance due on the date of presentation of the return;
- values used daily;
- amount and method of calculating any fee charged for making the ceiling available;
- effective monthly interest rate;
- amount of interest accrued in the calculation period, up to the date of presentation of the report, highlighting any deduction made following the charge of the fee.
Since January 2020, a limit has been established for the application of the uncovered interest rate by financial institutions. According to the Central Bank, institutions can charge a maximum of 8% per month; this interest rate is the effective (non-nominal) rate possibly chargeable by the institution, regardless of the form of daily capitalization carried out during the month, and this limit cannot be exceeded.
According to the Central Bank, the interest rates of financial institutions considering the overdraft and with reference to the month of November 2021 ranged from 66.87% to 418.21% per annum! For example: a debt of R$ 1,000.00 at the beginning of the year and an annual rate of 418.21%, at the end of the year the total debt would be R$ 5,182.10!
That’s why it’s important to have an emergency reserve as recommended in this column. So, at an unexpected moment, instead of going overdraft, you can use this reserve.
If you must use an overdraft, it’s essential to make the payment as quickly as possible to minimize your interest expense. Given the above in relation to interest rates, it is essential to research financial institutions to hire the service. Watch out for interest rates and charges.
* author of the book “Financial Planning: You’re in Control!”
Source: Terra
Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.
