If you are a little bit short of cash you might be thinking that it is just an easy action to ask your bank for an overdraft, or to just go over your limit with an informal unarranged overdraft. If it’s just for a few days until you next get paid there isn’t any real harm is there? If you don’t have the help of close friends or family members with some extra cash who can help you out of a tricky bind, and you don’t receive your next pay packet for a few days, what can you do? Here, we take a look at overdrafts in your bank account and the option of a payday loan. Both have merits, and although it might seem easier to just go into your overdraft, it could end up costing you a lot more than a short-term loan will.
The way high street banks and traditional lending streams have changed in operation in recent years has made it a much tougher proposition to borrow money than it would have been say, twenty years ago. When you compare it with a payday loan company you can see how even a person with a poor credit history can be accepted for an application for a payday loan, without it costing too much money if the repayment terms are met.
What are the differences to your cashflow though between a payday loan and an overdraft with your bank?
With a payday loan company there has been a significant shift towards a fairer, more transparent, and customer oriented service in the past few years. A range of responsible lenders have dramatically changed the landscape and made it much easier to see exactly how much money a person will pay back when taking out a payment loan over the course of a few weeks, or an instalment loan over the course of a few short months.
The problem in the past has been with the level of interest attached. A payday loan will always have an extremely high interest rate attached to it, but that is an APR that is meant as an annual figure, when the loan is meant to be paid back within a short period of time. Even if you agree to take out an instalment loan over 3-months for example, you will never be paying the eye-watering sums linked to the high interest rate. It is all about being sensible and understanding the costs you will be expected to pay prior to committing to the loan. A £100 loan taken out over one month for instance, will most likely cost you £130 in total, including interest.
With an overdraft through your bank however there could be a fee that you are charged as soon as you go over your limit, and you could be charged a daily penalty fee or a percentage of your overall overdraft. This can cost a fortune depending on how much money you have taken over your pre-agreed limit. Although payday loans have a bad reputation in some quarters a small, short-term loan could be a better option than an unarranged overdraft.