Can Overdrafts Be Better Than Small Loans
When you are looking into you short term borrowing options, there are usually two options that you have; your overdraft or to take out small loans. While you can help yourself with the loan, you will also need to think about whether the overdraft will be a cheaper option for you.
The problem with small loans is that there are fees involved in the loan and the interest rates are high. If you already have an overdraft that you can dip into, this will usually be your better option. Yes, there are interest rates involved in the overdrafts but they are generally lower in interest than the short term loans.
A big benefit of your overdraft is that your bank will usually allow you to make smaller payments over the course of a few months until you clear it off. As long as you are making regularly payments, they will not usually mind. You can also see the amount cleared as soon as your pay goes in too, which is why they will not be worried if you do use it as a buffer in the case of an emergency. However, you should not stay in your overdraft because the bank can demand your money back.
However, there are some advantages to taking small loans, especially if you do not have an overdraft approved. The problem with getting an overdraft approved is that you will usually find that you spend more money setting one up, especially when compared to the fees for the small loans. There is no other interest added on to the loans in that first month but you will get that when you look at your overdraft option.
There is no look into your credit history when you take out small loans, which means that you have more chance of being approved for the money; this will be dependent on your current financial situation. However, when you apply for an overdraft, your bank will look into how you have handled debt in the past and whether you can be trusted to take out the money. This footprint will be marked on your credit report so there are chances that this will do some damage and stop you from getting credit a short time in the future. The short term loans will not leave anything on your report unless you are approved for it in the end.
Another benefit of taking out small loans is that you can set up a direct debt to be able to pay all of the money back. This will help you not forget about paying it back and stop you from hindering your credit report. In fact, the small loans can actually help you improve your credit rating because you can prove that you are able to borrow money and pay it back on time. The problem with an overdraft is that it is on your credit rating all the time so it will not always help you with the improvement of your credit rating.