Payday loan or overdraft loan: which one to choose?
When you receive unexpected bills, it can be stressful to make sure you cover all the bills without damaging your finances.
However, with several options like payday loans and overdrafts to choose from, which one is right for you? In this article, we will provide you with information on which one is the best option for you.
What is an overdraft?
An overdraft is an option available on a checking account that allows you to borrow money from your checking account. When you borrow money on your overdraft. You will have an amount less in your checking account, this means that you will have to repay this amount to make sure you are in the green. It is important to note however that there are two different types of overdraft that you can use, they are:
Finished : This is an overdraft which is granted to you on your account and which is agreed between you and your banker.
Overdraft not settled: This is when you spend more money than you have and haven’t worked it out with your manager. This means you’ve gone over your overdraft limit and could be spending more in the long run.
Understand the different loan fees
When you’ve looked at the overdraft you have, then it’s time to make sure you understand the different fees. As each bank has different daily fees for being in your overdraft, it’s important to understand and calculate the costs of using your overdraft or applying for a payday loan. By examining the APR of both as well as the impact it might have on your finances as well as your credit score, you can then begin to determine what is right for you to help you with your financial emergency. It is important to note, however, that there are changes to the rules surrounding overdrafts that could benefit you, they are as follows:
- The interest rates on your overdraft are now capped at a single interest rate.
- There are no daily charges when you use your overdraft.
- The interest rate on an un-arranged and arranged interest loan is exactly the same.
Look at the different costs
As the costs of loans and overdrafts differ slightly depending on the lender and the APR, there are several things you need to consider. Not only will the APR affect the monthly repayment amount, but the amount you borrow can have a huge impact on your finances and other items as well. By evaluating this and managing your finances accordingly, you can pay off your unplanned bills or repairs while ensuring that you don’t negatively impact your finances over time.
With that in mind, there are several ways you can start paying off unexpected bills and loans while making sure you maintain your finances over time. Which one will you use a payday loan or an overdraft?