Overdrafts are a type of borrowing that a lot of us have access to. This is because they often come alongside a current account. Usually you will have your current account, which can use for your general banking needs, such as direct debits, standing orders, paying in salary and things like this but you also have the option of borrowing some money a lot of the time. Some people will not be offered the option for an overdraft, it tends to be dependent on how good your credit rating is, but many people will get one. They are there available to use at any time, but is it a good idea to use it?
An overdraft can be a really convenient way to borrow money. You do not have to apply for it, fill in any forms, wait for approval and things like this. It is just there for when you need it. It even means that if you accidently spend too much money it will just come out of your overdraft without you even noticing, so the money is there when you need it.
An overdraft is an expensive thing to use though. You will be charged interest from when you take the money and it will usually be 35-40%. This is relatively high and it will mean that you will be paying a lot of money for this overdraft. It will be charged right away until it is repaid. Repayments are very easy as the loan will automatically be repaid as soon as any money is paid into your account. However, there is no pressure to repay as there are no regular repayments or anything like that. This means that it could potentially last a long time and keep accumulating interest.
Although it is easy to use an overdraft if you have one with your current account, it can be expensive. This means that it can be wise to think about whether it really is the best thing for you to use. It is a good idea to think about your options and make sure that you have considered everything so that you are able to use the best possible solution for your situation. If you need something that is quick then you might be better off using a credit card if it possible for you to use one and you have one. Although the interest is still pretty high on these, they tend to be cheaper than overdrafts and you will have to repay some each month. It may only be a little each month but it will at least start to reduce the debt. It could be better though to get a personal loan. These will take time to arrange but they could be a better option because you will tend to pay less in interest and you will have to make regular repayments so the loan will not last so long.
It is a really good idea to think about what your borrowing needs are and then you will be able to match those with the right sort of loan. It is not good to just use an overdraft because it is convenient because you could end up paying a lot more money in interest than is necessary. This will make it a bad loan and will not be a good thing for you to have. However, if you have carefully researched all of the options that are available to you, then you will be able to think about which of them will fit your needs the best and this will be a much better way to make sure that you are getting exactly what you need from the loan.