How Does Overdraft Credit Work?

There is a slight difference between credit and a loan. Credit is a variable amount of money you borrow from a bank based on your spending. Credit has a limit. So, if you charge RM500 on a credit card in one month, you have borrowed RM500 from the bank. If you don’t charge any money the next month, then you will be borrowing nothing from the bank for that month. With credit there is a limit to how much money you can borrow in a given period. There will also be a specified repayment plan that is often monthly. In contrast to this, a loan is a fixed amount of money given to you and paid back over time. If you want to keep your options flexible, you should consider a line of credit. Many people choose an overdraft loan instead of a straightforward loan or line of credit.


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Overdraft Loans

An overdraft loan is a line of credit tied to a specific checking account. So, the overdraft loan doesn’t kick in until you run out of money on your checking account. That helps you stay on top of your bills and other types of spending. For example, if you have RM500 in your checking account and you pay a RM750 bill, you will overdraft by RM250. If you have a standard checking account plan, you’ll be charged a considerable amount of money to cover that overdraft. However, if you get an overdraft loan in Malaysia, you won’t be charged specifically for overdrafting. The bank will instantly loan the RM250 difference between your account and your expense. You’ll have to pay the loan back the way you repay a loan instead of paying a penalty for overdrafting.

This typically means you’ll be able to pay it back over time with interest instead of as a lump sum penalty.

Unexpected Expenses

Overdraft protection is ideal for people who might have a sudden shortfall or an unexpected expense. For example, if your car suddenly breaks down, you could be hit with an incredibly high expense that you were not expecting. If you don’t have the money to pay it, you’ll need to get a loan. The short-term loans from payday lenders and the like are often very predatory. You can avoid these by having overdraft protections. You can pay for the emergency and then pay the bank back over time. It will keep you up to date on all of your bills and expenses.

Furthermore, you will be able to cover unexpected shortfalls. If you have less money than you projected for some given period of time, you’ll be able to cover everything until you have more money. Afterwards, you can start paying back the loan.

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