Should I Get a Loan or Use my Overdraft?

Many people find themselves in need of a little extra cash from time to time. For instance, you might suddenly have to pay to replace an appliance in your home when something goes wrong, or you could need to buy a new car when yours breaks down to ensure that you can get to work. No matter the reason why you’re searching for finance, when you need to access cash, it’s worth noting that it can be hard to decide which solution is best for your needs.

One option could be to dip into the overdraft facility that has been provided by your bank. Located within your current account features, this can sometimes allow you to spend more money than you have and pay back the amount you go over the next time you are paid. Alternatively, you might consider getting a personal loan so that you can access a larger amount of money in one lump amount.

So, which is the best option?

Using your Overdraft Facility

An overdraft facility that has been approved by your bank can be a very useful way to access extra money if you need to pay for something as part of an emergency, or you only need to borrow money for a very short period of time. Overdraft facilities allow you to borrow the money that you need from your current account up to a certain limit. You might find that your bank offers you this feature automatically, whereas other people may need to request the facility specifically.
The important thing to remember is that your overdraft needs to be authorised, as this allows for a limit on how much you can borrow to be set by your bank. While some banks will require you to pay a fee to access overdraft services, others will offer a 0% interest rate on your overdraft so long as the money borrowed is repaid within a specific period of time.

Remember, the overdrafts that are often provided without any interest payments will usually be for a very small limit. In other words, you might not be able to access the amount of cash you need without paying at least something in terms of interest.

With an overdraft, you will need to make sure that you stick to the limit that is given by your bank, as you will risk high charges if you step over that amount. While there are some regulations in place that can reduce the amount you pay in fines by moving too deeply into your overdraft, charges can quickly mount up if you aren’t careful. Additionally, if you constantly max out your overdraft facility, you may find that it’s tougher to access credit anywhere else.

Getting an Unsecured Loan

If you’re in need of a larger amount of money, or cash over a longer-term period, then an unsecured loan might be the right option. Loans that are offered without the need for some kind of security (such as your home or car), are known as unsecured loans. These financial solutions allow you to borrow more than an overdraft facility, and often expect you to take longer to pay off the amount owed too.

You should be able to get an unsecured loan with fixed interest rates, which means that you know exactly how much you need to pay each month, and how long you will be making payments for. People who struggle to budget their money can find this kind of borrowing helpful as they can determine in advance whether they will be able to make the right payments on time according to their regular income.

One important thing to keep in mind with unsecured loans is that the interest rate offered can sometimes be high if you are trying to borrow only a small amount of money. Additionally, some loan providers will require you to pay a fee if you want to repay the debt borrowed early. It’s important to make sure that you check to find out what the terms of your loan will be before you sign up for anything.

It’s also worth noting that unsecured loans are often more expensive than loans secured against property. However, you can shop around to find the best APR available to you from any available bank or building society.

Small Loans: The Best Way to Borrow Small Amounts

Sometimes you may find that you’re in need of extra cash, but that doesn’t necessarily mean that you need thousands of pounds to pay for the item you want. Though some loans like mortgages and car loans can be quite large, other loans are simply required to help you make ends meet over a short period. Unfortunately, it’s worth noting that the cheapest loan arrangements are generally reserved for people who borrow larger amounts – and have a good credit rating.

That being said, you will still have options available to you if you want to borrow a small amount – particularly if you have a good credit score too.

Understanding a Small Loan

While some loan providers are willing to quickly process small loan requests without much off a problem, you might find that others take more time to get the details of your loan sorted out. Depending on who you go with for your small loan, you might be able to get cash into your account the same day, or you may find yourself waiting for weeks before you see the cash you need.

Importantly, if you need money instantly for something – like a medical expense or a broken washing machine, then you might need to double check when you can expect to get the money before you apply for your loan. Remember, with personal loan amounts it’s also worth checking how much you will be allowed to borrow. Usually, the amount you can access will depend largely on your credit score and your existing commitments.

Small Loans and your Credit Score

One thing that many people worry about when they’re taking out a small loan – is how much they will be affected in terms of their credit history or credit score. Any kind of borrowing – no matter whether you’re borrowing for a mortgage, or a credit card, will be noted on your credit file. In other words, this means that lenders and banks will be able to see if you’ve borrowed money successfully and how well you paid it back.

Although borrowing too frequently could reduce your chances of being accepted for further credit during the span of your loan, the long-term impact of a small loan when it comes to addressing your credit score will largely depend on how you manage the money that you borrow. Essentially, the best thing that you can do is make all of your payments on time. This way, you could even potentially improve your credit score!
The Alternatives to Small Loans

Because small loans can be so expensive in terms of high APR and interest rates, it’s usually a good idea to check and make sure that no other options are available before you start applying for your loan. A good way to do this is to ask a close friend or relative to lend the money you neeed for a short time. On the other hand, you could always consider using the overdraft facility on your current bank account.

A lot of current accounts come with an overdraft facility as standard, and most will charge 0% interest as long as the amount that you borrow doesn’t exceed a certain limit. If you are disciplined, you may also find that you can pay off and overdraft far quicker than a personal loan, which means that you cut down the amount you spend I n interest.

Additionally, some providers will offer 0% credit cards that allow you to gain access to small amounts of money for a certain period of time without any interest charges. Crucially, however, you will need to make sure that you pay off the amount you owe on your credit card as quickly as possible if you want to avoid building up extra charges. However, if you simply need cash until a pay check comes through, then a credit card or overdraft facility could be the best solution. Some credit cards are currently offering a period of up to sixteen months of interest-free spending which can be very beneficial for people who only need access to an extra amount of cash for a short period of time. Just be careful, as after your free spending period is over, the interest can rise dramatically.

How to Choose the Best Lender when Borrowing Money

If you are looking to borrow money then you will have a lot of options in front of you. It can be difficult enough choosing which type of loan you want to go for as there may be several options available to you. However, once you have done this, you will then find that there is a whole selection of lenders that you can go to. This can be rather confusing as you may have no idea who might be the best one for you to choose between.

Some people will go to a financial advisor. You do have to pay for this service, but they will be able to make a recommendation for you. If you choose an independent financial advisor then they will be able to look at all of the options available and let you know which they feel will be the best for you, depending on your circumstances and requirements.

However, some people would rather not pay for a financial advisor or feel that they would like to take a look for themselves and choose what they think is the best. This will take a lot more time and if you know little about loans, will be a big learning curve and you will have to make sure that you have a good understanding of everything before you commit to a decision.

Some people will turn to a comparison website. There are plenty of them around and you can compare prices of many things, including loans. They will compare a selection of companies and let you know how much each will charge for a loan. However, they will not always be a like for like comparison. They may show you those with the lowest interest rates, but this is not the only thing you need to be aware of. It is also important to be aware of the charges they may have for setting up the loans and the fees if you do not pay it back on time or want to repay it. It is important to look at all of the terms and compare the loans on more than just the interest rate so that you are really sure that you are picking the right one for you. It could be worth looking at a selection of comparison websites as they will differ in the different lenders that they compare and so you will be able to get a better idea of what companies are offering loans.

It is worth noting that some lenders do not appear on comparison websites. This is because they have to pay commission on sales made through comparison websites and so save the money by not appearing on them. They may be able to charge less as a result of this and so it can be worth picking out a few of these so that you can see whether they really are cheaper than the other options.

However, as well as comparing on price you need to think about the lender themselves as well. Are they a company that you have heard of and does that matter to you? Do you think that you will be able to trust them? Are they a good company and will they be flexible if you cannot make repayments? Do they have a good customer service? You will be able to find out some of this information by reading reviews of the companies. However, you may also want to take a look at their websites to find out more about them and call their customer services to see what they are like and ask them questions with regards to any concerns you may have. This should give you plenty of information so that you can decide whether you think that you are picking the right lender for you. It can be a lot of work, but it could make a huge difference, not just with regards to the cost of the loan but also to how smooth the loan period is and how much peace of mind you have. Even if you do not have any problems, it can give your peace of mind to know that it is a lender that you will trust to deal well with you and treat your fairly if you need help.

There is a lot to think about it can feel like a lot of hassle to have to do this much work to find a lender. It can make a big difference though, to both the cost of the loan and how things go during the loan period. People do choose to use a financial advisor because it is so much hard work to do all of this work yourself. However, even if you do use one, you may still like to check out the lender that they recommend just to be sure that you are completely happy with them.