Payday Loan Canada
- Overdrafts occur when bank customers withdraw cash from their account, with the balance going below zero. An overdraft is basically a form of credit extended by a creditor when the account balance reaches zero. Overdrafts allow bank clients to withdraw money even when there are no funds in the account. In other words, banks allow their clients to borrow certain amount of money. With overdraft accounts, financial institutions cover checks to prevent them from bouncing. Given that overdrafts are a type of loan, bank clients pay interest on the overdraft’s loan balance. On the other hand, the interest rate is often lower compared to credit cards.
Overdrafts may occur for various reasons, among which not maintaining proper account register, merchant error, unexpected electronic withdrawals, and more. When the accountholder fails to maintain his account register well, overspending is due to negligence. Another reason for overdraft is, in fact, the possibility to overdraw money using an ATM. Some ATMs and banks allow withdrawals even when cash is insufficient in the account. ATMs are sometimes unable to communicate with the bank of the accountholder, with this resulting in automatic authorization of withdrawals. With temporary deposit holds, banks can put on hold a deposit that has been made to an account. Bank policies or Regulation CC may be responsible for that. Given that money is not immediately available, this will result in overdraft fees. Unexpected electronic withdrawals are yet another reason for overdrafts. This may occur when the trial period of some recurring service ends. Overdrafts may also occur due to direct deposit chargeback, recovering overpayment, or wage garnishment. Finally, overdraft may occur due to merchant error, with a merchant wrongly debiting a client’s account.
On the other hand, it can be said that an overdraft acts like a safety net on one’s account. Clients are allowed to borrow up to a specified limit whenever they do not have money in the account. This is useful in covering short-term financial problems. Keep in mind that some bank accounts come with an overdraft facility, but this is not necessarily true for all accounts. If your account doesn’t, you need to ask your banking institution for an overdraft facility. The bank’s decision will depend on the client’s record, and he may be required to pay a fee for setting it up. You will not have to use it unless you need an overdraft. Moreover, you will not be required to pay additional charges in case of accidentally overdrawing. Naturally, clients have to pay the overdraft and interest charges. Rates depend on the bank and can be variable and fixed. In addition, a monthly charge and arrangement fee may apply. If you don’t have the bank’s authorization to overdraw, the charges may be quite high. Your financial institution may not pay direct debits, bounce checks, and charge a fee for all refused transactions. Administration fees may be set in place as well.
Overdraft protection is mainly offered by US financial institutions. Overdraft protection, also called courtesy pay program protection, covers the payment of items when money is not sufficient for given withdrawal. Overdraft protection may cover different withdrawals, including checks, electronic transfers, debit card payments, and ATM withdrawals. In simple words, overdraft protection allows for the payment of authorized items rather than being bounced or returned.
Finally, there are overdraft lines of credit, which are extended in compliance with the Truth in Lending Act. Clients can apply for an overdraft credit line by completing and signing an application. Based on the client’s credit rating, banks will deny or approve the application.