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.