Many people will have an overdraft facility on their current account. This will allow them to spend more money than they have in the account and will therefore be a way to get a bit of extra money if it is needed. There are advantages to using an overdraft when you need to borrow money but there are also disadvantages as well. It is worth being aware of each and then you will be able to decide whether using an overdraft will be the right thing for you.
An overdraft is a way of borrowing money quickly. Once you have got the agreement with your bank that you can borrow then you can use the overdraft whenever you need to. This is much quicker than organising a loan when you need the money and so it can help you out. If you need money in an emergency then this can be a really good way to get it very quickly.
You will only be offered a limited amount of money, although you will be able to borrow more than that. If you borrow more the charges will be higher. This is good because it will limit how much you spend and if you are careful you will not want to be charged the higher amount so you will hopefully use the overdraft really carefully. You can even ask your bank to reduce it if you wish and that will mean that you will have to be even more careful.
The overdraft will be repaid automatically when you put money into the account. This means that it is easy to repay and could potentially be repaid quickly. However, repayment is flexible and this means that you will be able to repay when it suits you. You will be able to borrow the money for as long as you wish and as long as no money is paid into the account it will just remain unpaid.
Like all loans the overdraft will cost money. There will be charges every day that you are overdrawn. These can be pretty high and if you are overdrawn for more than you have agreed with the bank, and even if it is not for that much it could still add up to a lot of money. Overdrafts can be one of the more expensive ways to borrow and it is always wise to make sure that you are aware of how much it will cost you before you use it. You might be surprised at how expensive it is. Think about the cost and whether you are happy with paying that. It is best to consider whether the you would have been prepared to pay that much extra for the item that you are using the overdraft to pay for. If you would not have bought it at that price then do not buy it now.
It can be too easy to use an overdraft if you do not keep a close eye on what you are spending from your current account. You can easily keep on spending through the month and use the money that is available to you without thinking about it. Therefore, you need to make sure that you are very careful with what you are spending. Keep a check on your account balance and perhaps keep a buffer of money in there so if you accidently overspend you do not go overdrawn.
Is an overdraft a good idea?
So whether an overdraft is a good way to borrow will depend on you and your circumstances. If you need to borrow just a small amount and need it quickly then it can be ideal. However, it is wise to make sure that you are confident that you will be able to repay it quickly so that you do not have to pay too much for it. If you think that you will keep being tempted to use it for all sorts of treats then it may be a good idea to try not to as you will end spending a lot of money and paying a lot in interest as well. There may be cheaper ways to borrow money as well, so you could think about whether you might want to compare prices of different types of loans to see whether there are any others which might offer you better value for money. It is wise to think hard about using the overdraft and do not use it just because you can. If you do this then you will be able to also make sure that you are confident that you can repay it and that you can afford it as well. Giving it this much thought will mean that you can be confident that you have made a good decision with regards to whether you should use it or not.