Are Overdrafts Worthwhile?

Overdrafts

Most people have an overdraft facility available for them to use with their current account. Some people use them a lot, but there are other people that hardly use them at all. It is a good idea to think about whether you think that an overdraft is something that you should be using. Whether or no you have one currently and whether or not you use it, it is a good idea to think about the advantages and disadvantages of using an overdraft and this should help you to decide whether it is a good idea for you to use one or not.

Cost

Overdrafts have quite recently had a bit of an overhaul and not the lenders are only allowed to charge a percentage interest and no additional fees. Similar to payday loans for bad credit. This has led lenders to set their interest rates at between 35% and 40%. This is relatively high compared to some other types of borrowing and so you will need to consider this when you are thinking about using one. It is a good idea to check out how much it will be by asking your bank and then looking at other borrowing options such as personal loans and credit cards, to see how it compares. Then, if you are considering borrowing some money, you will have an idea as to whether this is a good way to borrow or whether there are better alternatives available for you.

Convenience

It is good to bear in mind as well, that it can take time to organise loans. With the overdraft, once it is arranged and available, it will just be there for when you need it. If you decide to take out a personal loan, for example, your bank could take a while to get the money that you need, to you and therefore it may not be a very good option for you. It all depends on how quickly you need the money as to whether you will need something that takes no time to arrange.

Repaying

It is also worth considering how you repay. An overdraft is quite unique in that you will not be asked to repay in instalments or anything like that but it will just be automatically repaid as money goes into your bank account. This means that next time money goes in, it will repay the overdraft first and what is left will be available for you to spend. This can be useful in a way as you do not need to worry about how and when you will find the money. However, it can also be tricky because your money will disappear when you get paid and you may find that there is not enough left to pay for the things that you need, so you may have to go overdrawn again.

So, it can be a case of thinking about whether you feel that the convenience of the overdraft is worth the cost. It can be nice knowing that there is an overdraft available for you to take advantage of and that you will be able to get money in an emergency if you need it. However, it is expensive and it can be annoying if you accidently go overdrawn and have to pay that high interest because you misjudged your spending. Therefore, you will need to always be careful, to track your account balance and make sure that you are happy that there is enough money available to keep on spending. You will need to make sure that you have a way of keeping track of this and if you have online banking then this can be a good way to do so as it is very convenient and you will be able to do it at any time when you are near to your PC or perhaps your mobile device.

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