Will Having Overdrafts help me?

It can be worth thinking about different loan types and whether they might be useful for you to have, knowing how they work and how much the cost will help you to be able to make a decision more easily if you do decide that you need to borrow money. You may feel that perhaps having an overdraft facility available to you could be really helpful, but it is a good idea to think about the advantages and disadvantages of this before you get one and then you will be sure that the decision that you are making is the right one.

Pros of an Overdraft

Having an overdraft facility means that you will have money available to you if you need it. You will be able to use it if you have an emergency and do not have enough money to pay for it. You will also be able to use it if you need a little extra money for something, even if it is not an emergency if you wish. It can feel good to know that you will have this money available to you if you need it.

Cons of an Overdraft

An overdraft is an expensive way to borrow compared to some other ways of borrowing. This means that it might not be the best option for you to take. It is always worth thinking about all of the types of loans and which will suit you the best. It may be worth paying more for some types of borrowing but you will need to make sure that you feel that it will give you good value for money.

Having an overdraft facility means that you will always have this money available for you to use if you want to. It can be tempting to therefore use it even if you do not have an emergency situation. If you just fancy a treat and you think that you deserve it, then you might use the overdraft money to pay for it, even if you know you really shouldn’t. Some people will tend to know that they wouldn’t do this as it just isn’t the sort of thing they are tempted to do. However, some people will know that they are very likely to do this. If this is the case with you, then it could be a good idea to avoid taking out the overdraft as you may just find that it is tempting for you.

It is also important to make sure that you repay the overdraft. As an overdraft does not have a repayment schedule it is important to make sure that you do repay it. It will be repaid automatically when money goes into your account, but if there is not enough to repay it all then you will still owe some. It may also be a while until you do have money going in and so interest will keep adding up. You may even find that you will be tempted to avoid having money paid into that account so that you can spend the money rather than repay the overdraft. Some people do this and open a second current account to run their transactions through and just leave the other with the overdraft outstanding in it. This can mean that they will keep paying interest on that overdraft for a long time. It can be too easy to ignore and just pay without thinking about what else you could be doing with that money. It can feel much easier to just pay the interest than contemplate repaying the debt itself which might feel like a daunting prospect. However, it is worth remembering that you can repay it in parts and so you will not need to find all of the money in one go.

Are Overdrafts a Good Thing?

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. 

Alternatives

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.