There are some people that are not at all keen on overdrafts and there are others that think that they are good. It is not surprising that people have different opinions on it all as we often differ in our opinions on a lot of things. However, it is worth making sure, that whatever your opinion might be, that you have weighed it up carefully It can be tempting just have the same opinion as people we know or form an opinion based on just a few things. It is therefore worth being aware of how overdrafts work, how much they cost and what the alternatives are before you make up your mind.
How do Overdrafts Work?
Overdrafts are a very specific way of borrowing money. They are tied to a current account and you will be offered a certain amount of money that you will be able to borrow. It is available for you when you need it, but as soon as you start borrowing you will be charged interest on it. The interest rates will vary between banks but they are generally 35% – 40%. The overdraft has no specific repayment plan because as soon as you pay money into your bank account it will automatically repay the overdraft. Most people have a salary, benefits or other payments going into their bank accounts regularly and therefore it will be paid off. However, there are some people that will have an overdraft with an account that they do not pay money into and just leave it sitting there for a long time and accumulating interest on it.
How Much do they Cost?
The interest rate tends to be 35% to 40%. This does not mean a lot unless you compare it to the rates of other types of borrowing. So, it a good idea to be aware of what you bank is charging for other things which you can generally look up on their website. This will help you to understand how much this is and whether it is expensive or not. It is generally the case that credit cards might be cheaper but there could be some dearer ones and personal loans tend to be cheaper but you often have to borrow more as a minimum. A shirt term loan or no credit check loan will tend to be dearer.
It is well worth comparing the prices of different loans and thinking about what your alternatives might be. It is wise to start by thinking about whether you really need to borrow money at all or whether you would be better off just going without the item. If you still want it, then consider whether you can wait for it and save up as this would be cheaper than borrowing. You may already have some savings you could use or put towards it. If you do decide to borrow, then you will need to find out about all of the types of loans that are available and consider which will fit your needs the closest. It is worth thinking about the cost but also about the value for money that you get. Once you decide on a loan type, then it can be a good idea to compare all of the lenders that offer this type of loan and see which of those look the best. You will probably find that there are plenty to choose from. This means that there is a good chance that you will be able to find one that suits your needs really well, whether that might be an overdraft or a different type of loan that you have decided will work best for you.