A bank overdraft is a nominal account
What are borrowing rates?
Debit interest, also called Nominal interest known, customers will be charged for taking out credit or for using a limit on the current account. The borrowing rate is the price that customers pay their bank for lending money. The lower the borrowing rate, the greater the incentive to borrow money from the bank, and vice versa.
The amount of the debit interest depends on the current market situation, the type and duration as well as the amount of the loan.
Debit interest vs. effective interest
The borrowing interest describes the pure interest on the loan amount without any additional costs.
In contrast to the debit interest, the effective interest also includes ancillary costs of the loan, such as processing fees or premiums for a life insurance that is taken out when the loan is taken out. Thus, the effective interest rate reflects the actual interest rate on the loan amount and serves as an interesting benchmark for different loan products.
Debit interest vs. overdraft interest
Colloquially, the term overdraft interest is often used in connection with a debit balance on the current account. In fact, debit interest is charged for the use of a framework granted by the bank. In the event of - unauthorized - overdraft of the agreed limit, additional overdraft interest may be charged on the excess amount.
Types of interest simply explained
In addition to debit interest, there is credit interest on bank deposits. It is also particularly interesting for borrowers whether the interest rates are nominal or effective. Often terms such as compound interest or key interest are also used. In our glossary you will find simple definitions of terms and better answers to your questions.
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