Is it Worth Using Overdrafts?
There are lots of different types of loans and they can be similar in some ways and different in others. An overdraft stands out as being quite different to other loans though. This is because it is associated with a current account, has no formal repayment schedule and does not need to be applied for, once on is arranged. It can therefore be worth thinking about whether it is worth using them.
Advantages of Overdrafts
Once you have arranged an overdraft, the money will always be there for you to use. This means that if you have an emergency and suddenly need money, you will know that it is there for you if you need it. It can be reassuring knowing it is available. Also, knowing that you can have the money instantly can be great as well because you will be able to use it if you have an emergency without worrying about how long it might take to arrange a loan. You will also not have any pressure to repay quickly because the loan will just repay when money is paid into the account. It is therefore very easy to repay and you can do it at your leisure.
Disadvantages of Overdrafts
Having money accessible to you all of the time can be very tempting. Some people will even feel like this is money which is theirs to spend and that they can treat themselves to things. They forget that it is not theirs and that they will need to repay it at some point and that they will be charged interest on it while that have it. Interest rates on overdrafts tend to be 35% – 40% and so they are relatively high compared to some other types of borrowing.
Being able to borrow instantly may not be such a good thing as it means that you do not have time to think about it. You might change your mind about borrowing, if you have to work a bit harder to find a loan and this could save you having to pay out so much money with regards to the loan costs. You should also compare different loans types so that you can work out which one will give you the best value for money. It is tricky to do this and you may decide that as it is easier you will just use the overdraft, even though it is likely that this will be more expensive.
The fact that there is no pressure to repay may also be a problem. This is because you could find that you will be more relaxed about it and decide that you will not worry too much about when you get in debt and about how you are going to repay the debt. Although it is good for your health not to get stressed about this sort of thing, it can mean that you will be paying out a lot of money in interest for the overdraft that you have.
So, as you can see there are a lot of things to consider when you are thinking about taking out an overdraft. Think about yourself and what your approach towards it is likely to be. Think about the risk of having one and whether you think that it will be a good thing for you to have or whether you might end up regretting getting one. If you are not sure, then it could be worth thinking about other loans you have had and what you have been like with those as well as thinking about you usual behaviour with money. This should help you to be able to make up your mind.