What you are calculating
The overdraft is convenient – and quietly expensive. If you are regularly in the red, you quickly pay more than you need to. These calculators help:
| Calculator | Typical question |
|---|---|
| Overdraft interest calculator | What does the overdraft cost me for a given period? |
| Installation loan calculator | What rate would a cheaper loan for refinancing have? |
| Car loan calculator | Which payment goes with which term? |
| Compound interest calculator | How does interest work over longer periods? |
What is an overdraft facility?
The overdraft facility (overdraft facility) is a credit line on your current account. You may overdraw the account up to an agreed limit without taking out a separate loan agreement. That makes it flexible: no application, no fixed payment, available immediately. Banks charge high interest for exactly this flexibility.
How overdraft interest builds up
Overdraft interest is charged day by day on the amount actually used. The formula is simple:
- interest = overdrawn amount × annual rate ÷ 100 × days ÷ 365
The interest is usually settled and charged to the account quarterly. Only the amount you are truly in the red counts, and only for the days you use it. If you balance the account quickly, you pay less accordingly.
Example
You are €1,800 in the red, the overdraft rate is 11.9% per year, and the overdraft lasts 30 days:
- €1,800 × 11.9% × 30 ÷ 365 = about €17.60
That sounds small. But being €1,800 in the red for a whole year costs about €214 – year after year, without the debt getting smaller. The exact figure for your case comes from the overdraft interest calculator.
Overdraft and tolerated-overdraft interest
There are two levels that are often confused:
| situation | What applies |
|---|---|
| Within the overdraft limit | Agreed overdraft rate (e.g. 9–14% p.a.) |
| Beyond the limit (tolerated overdraft) | Additional, usually higher interest |
The tolerated overdraft is the most expensive form of short-term financing. If you use it regularly, you should urgently adjust the limit or refinance.
How to cut the costs
- Balance the account quickly. Every day less in the red directly saves interest.
- Refinance with an installment loan. For permanent use, an installment loan at 5–8% is almost always cheaper than an overdraft at 12%. The installment loan calculator shows the rate.
- Arrange a flexible line of credit – as flexible as the overdraft, but with a lower rate.
- Choose a realistic overdraft limit. A limit that is too high invites permanent use; one that is too low leads to expensive tolerated overdrafts.
- Compare banks. Overdraft rates vary widely – switching accounts can pay off.
Rule of thumb: short term yes, permanent no
The overdraft makes sense as a buffer for a few days – for example until the next salary arrives. As a permanent solution it is almost always the most expensive option. A rough line: if you use the overdraft for more than two to three months in a row or with large amounts, switching to a fixed loan is worth it.
Common misconceptions
- "As long as I stay within the limit, the overdraft is cheap." Even within the limit, 12% is a high rate – well above any normal installment loan.
- "Interest only accrues at the end of the year." It builds up day by day and is usually charged quarterly.
- "Refinancing only pays off for very large sums." Even with permanent four-digit amounts an installment loan saves noticeably.
Conclusion
Overdraft interest is easy to calculate and easy to underestimate: day by day on the amount used, often 9–14% per year, even more above the limit. As a short-term buffer the overdraft is fine – if you use it permanently, an installment loan is usually far cheaper. Calculate your costs with that overdraft interest calculator and compare with the installment loan calculator.
Sources
- Deutsche Bundesbank – interest statistics on overdraft credit – bundesbank.de
- Consumer advice center – overdraft interest and account overdraft – consumerzentrale.de
- German Civil Code section 504 – overdraft facility – gesetze-im-internet.de/bgb/__504.html