Credit Loan: Better to use cheaper loans

The disposition credit (abbreviation “Dispo”), which is known in the general language as a dispo loan, represents a special form of current account credit. The disbursement credit is a current account credit, which private individuals are provided by credit institutions. Accordingly, it represents a consumer credit within the meaning of § 493 BGB. By definition, a credit line is a credit line which banks grant their private customers to their checking account.

As a rule, consumers use the credit line to finance private consumer goods for which their own liquidity is insufficient. In the same way, companies have the opportunity to use overdraft facilities in the form of so-called working capital loans. The term disposition credit is derived from the Latin verb “disposonere” (dispose) and indicates the flexible availability of this loan.

Dispo credit vs. loan

The main difference to conventional loans is that no fixed loan amount is determined in the credit line. Instead, the borrower is given a limit up to which he can claim a loan in his current account (current account). This limit is also referred to as a credit line or credit line. In terms of height, this credit line is usually limited to a maximum of three net monthly incomes. This credit line may be determined individually based on the creditworthiness of the account holder and, where appropriate, adjusted to changes in creditworthiness.

Within this committed credit limit, the borrower is free to make dispositions in the desired amount via his account without any account balance in order to use the granted credit facility. This in turn means that the borrower himself decides when, how often and in what amount he takes up a credit line. The disposition credit is thus available at any time and does not require a separate credit application.

Similarly, the borrower may repay the loan amount without notice in a single installment or in installments. In the area of ​​debt financing, the credit line can be classified in the category of short-term to medium-term loans. In practice, however, it is usually a perpetual loan, which is extended over and over again as long as the creditworthiness of the borrower for the agreed credit line proves to be sufficient.

High costs for the credit line

As with other loan financing, the borrower will also be charged interest on the loan. The calculation basis for the disposition interest is the borrowed amount used within the credit line. The offset interest rate is usually variable and adapts to the current market interest rate. Unlike other lending rates, these interest rates are much higher. Interest rates of more than 10% are not uncommon in the case of credit facilities. These overdraft interest rates must be differentiated from the overdraft interest, which may be incurred in addition.

If the borrower exceeds the defined credit limit of the disposition credit, he will be charged overdraft interest in addition to the disposition interest. They are due for the amount by which the credit line was overdrawn. The interest on this overdraft may be beyond 14% or 15%. Overall, the flexibility of the credit line with high credit costs is compensated.

Due to its cost level, a repayment credit is only suitable for compensating short-term financial bottlenecks. When it comes to medium to long-term debt financing needs, it proves to be too expensive compared to the installment loan. If the credit line granted on the checking account is used up over a longer period of time, an alternative to the credit line should be considered and, if necessary, a rescheduling be considered.

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