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.

Leave a Reply