How do Overdrafts Compare With Other Borrowing Methods?

It is always worth comparing different methods of borrowing when you are looking for a loan. This is because they can vary quite a bit and you will need to be sure that you pick the method which works best for you. You need to think about how much you need to borrow, how soon you need the money, how long you want it for, what you can afford to repay,  how much you are prepared to pay for the loan and whether there are any features you are looking for in the lenders. This is a lot to think about and it is important to get it right because it will determine whether you get good value for money form the loan and whether you have appositive borrowing experience. So it is really important to know what the main features are and then you will be able to decide whether it is a good option for you.

How Much Can you Borrow?

With an overdraft the amount you can borrow is flexible to some extent. You will be given a credit limit and you will be able to borrow up to the amount. The specific amount that you will be able to borrow will depend on what the bank decides to give you. Some will give all customers a similar amount and some will base it on your credit rating. You will have to look at different ones to find out how much you will be able to get. Normally the amount will not be more than a few thousand pounds though and it may very well be less. This means that you may need to look elsewhere if you need to borrow a significant chunk of money.

How Much Does it Cost?

The cost of an overdraft can vary. Most lenders tend to charge between 35% and 40% though and they are no longer allowed to charge additional fees or charges which means that you will be able to compare them easily to see which is cheapest. This rate is quite high compared to some credit cards and personal loans although it is less than short term loans, so you will need to think about whether you want to pay this or whether you are going to look for a cheaper option.

How is it Repaid?

Unlike most loans, there is not a specific repayment schedule for overdrafts. The overdraft is just repaid when money is paid into your current account. This means that you will be able to repay it as you can afford to. Although this has advantages as there is no pressure to find the money by a certain date, it also means that the overdraft could hang around for a while and you will be charged interest for every day that you have it.

Who are the Lenders?

With an overdraft the lender will be the bank that you hold your current account with. This means that you will know who they are and are likely to trust them and be happy with using them or else it is unlikely you would have an account with them. You may be choosing a new bank though, but most banks are well known. With some loans, the lenders are less well-known and perhaps do not have high street branches and are newer and less familiar to us. You will need to decide if you are happy with using these sorts of lenders or whether you would rather go with one that you know.

So, you can see that there are quite a few differences between overdrafts and other ways to borrow. You will need to think about whether these differences are important to you and how they will influence how useful this type of loan will be for you.

How to Easily Repay Overdrafts

It can be stressful, if we have an overdraft, to think about how we are going to manage to repay it. However, there are ways that we can do it which are easy and therefore there should be no need to worry about it. You will need to be prepared to make some changes and perhaps work hard at it, but that doesn’t mean that it will be complicated.

Reduce Spending

To start with, it can be a good idea to think about whether you can reduce your spending. This is not something which comes easy to some people but it is actually not too difficult. Just think to yourself, every time you buy something, whether you really need it. If it is something that you can do without or delay buying then just do not buy it. If you do this with everything that you are buying then you could reduce what you are spending a lot. Often, we will buy things through habit or without really thinking about it and we may even wonder why we bought them or regret buying it and so if we think harder about purchases then we will avoid doing this. It is wise to also look at things we pay for by direct debit and standing order as it is much easier to forget about those. We might have magazine subscriptions, gym memberships and things like this that it could be worth considering whether to cancel or not.

Pay Less

It is even easier to make sure that we are not paying too much for what we are buying. It is a good idea to compare prices on the things that we buy so that we are sure that we are not paying more than necessary for them. We but lots of things and if we can pay less for most of them, we can spend far less money overall. A little reduction in spending here and there could add up to make a really big difference in the long term. So look at everything you are buying and see whether you can buy it from a cheaper place or if you can choose a cheaper brand. It need not be forever, but just until the overdraft is repaid. However, once you get into the habit of comparing prices, it can be a good habit to stick at as it means you will no longer be paying more than necessary for things.

Earn More

It can also be a good idea to think about whether you can earn more money. This might seem hard but there are actually lots of potential ways that we can earn more money. To start with think about your job and whether you might be able to try for a pay rise, promotion or do some extra hours to get more money. Think about whether you could take on another job as well to earn more. You might be able to find some online work or freelance work or the odd temp job. You might even be able to raise money by selling things you own and no longer need, monetising your hobby or renting out some space in your home. There are lots of things to try.

If you try all of these methods to raise some extra money, then you should have spare money to be able to repay the overdraft. It can be good to keep going with some of the things as well because that will enable you to be able to have more money all of the time and means that you are less likely to be in the situation where you will need to go overdrawn again.