What is an unauthorized overdraft?

We are going to explain what it is and how to avoid it
An unauthorized overdraft occurs when a bank customer has a negative balance in their account. This means that they don't have enough money in their account to cover a specific payment, so their bank allows them to enter into an unauthorized overdraft by loaning them the funds to repay the debt. In doing so, the bank charges a fee and/or interest, which will depend on the size of the debt. This situation can be caused by a lack of foresight about the relationship between collections and payments. However, it may also be due to an unforeseen event, such as a delay in receiving a salary payment or the existence of an unexpected payment.
Check the contract you signed to open an account to find out the amount of interest and fees entering into an unauthorized overdraft might entail. The contract stipulates the general terms and conditions for overdrafts and other circumstances.

Fees frequently charged on unauthorized overdrafts

Banks charge different amounts of interest and fees on unauthorized overdrafts. Some of the most frequent are:

  • Debit interest. This type of interest is applied to the negative balance. It is calculated by multiplying the negative balance by the number of days the unauthorized overdraft has been in effect and by the agreed lending rate.
  • Unauthorized overdraft fee. This is the fee charged for entering an unauthorized overdraft. It is calculated by applying a certain percentage to the highest debit balance for the settlement period. Under no circumstances can this give rise to an APR that is more than 2.5 times higher than the legal interest rate for unauthorized overdrafts on consumer accounts.
  • Fee to seek payment of an unauthorized overdraft. If the unauthorized overdraft remains in effect over a number of days, the bank may charge a fixed fee to perform the actions needed to recover the negative balance from the customer.
The fee or interest will be paid upon settlement of the account within the term agreed upon with the bank (one month, three months, etc.). Most banks offer a notification system to warn customers when they are about to go overdrawn.
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Projected transactions - the best form of protection

One of the best ways to protect you against the risk of incurring fees and interest charges in an implicit overdraft is to check your expected transactions using BBVA Bconomy. With this new feature, you can control your expenses and income with ease. “Projected transactions" provides information about the relationship between income and expenses that you will have the following month, based on your past balances and transactions in BBVA (with data going back to 2007). In addition to the payments that we know we will have to make, such as real estate tax, insurance, mortgage payments, or rent, this feature also takes into account potential purchases and cash withdrawals, offering a very approximate and useful idea of what your balance will be in a month's time. A very useful tool to make decisions based on as much information as possible.

What's more, the BBVA app features our chatbot to help you manage your finances. Imagine having a personal assistant available 24/7, designed to let you control every aspect of your monthly budget. Do you have any questions on financial concepts? Do you want to receive offers tailored to your profile? Don't worry, our chatbot will take care of everything and make your life a little simpler.

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