When you are met with unexpected bills, it can be a stressful process to make sure that you cover all the bills without damaging your finances.
However, with several options such as payday loans and overdrafts to choose from, which is the right one for you? In this article, we will be providing you with information on which one is the best option for you.
What Is An Overdraft?
An overdraft is an available option on a current account that allows you to borrow money from your current account. When you borrow money in your overdraft. You will have a minus amount in your current account, this means that you will have to pay back this amount to ensure that you are in the green. It is important to note however that there are two different types of the overdraft that you can use, these are as follows:
Arranged: This is an overdraft given to you on your account that is agreed between you and your bank manager.
Unarranged Overdraft: This is when you spend more money than you have and did not arrange this with your manager. This will mean that you have exceeded your overdraft limit and could be spending more in the long term.
Understand The Different Loan Fees
When you have looked at the overdraft that you have, it is then time to make sure you are understanding the different fees. With every bank having different daily charges for being in your overdraft, it is important to understand and calculate the costs of either using your overdraft or applying for a payday loan. By looking at the APR of both as well as the impact that this could have on your finances as well as your credit score, you can then begin to determine which is right for you to aid you in your financial emergency. It is important to note however that there are changes to the rules surrounding overdrafts that could benefit you, these are as follows:
- Interest rates for your overdraft are now capped at a single interest APR.
- There are no daily fees when using your overdraft.
- The interest rate on both an unarranged and arranged interest loan is exactly the same.
Look At The Different Costs
With the costs of both loans and overdrafts differing slightly depending on the lender as well as the APR, there are several different elements you need to consider. Not only will the APR affect the monthly repayment amount, but the amount you borrow can also greatly impact your finances and other elements. By assessing this and managing your finances accordingly, you can pay off your unexpected bills or repairs all whilst ensuring you do not negatively impact your finances over time.
With this in mind, there are several ways that you begin to pay off unexpected bills and loans whilst making sure that you are maintaining your finances over time. Which will you be using a payday loan or an overdraft?