Understanding your finances can be difficult at first, especially when you run the risk of having an overdraft. But could going overdrawn be less financially risky than applying for a payday loan? In this article, we’ll give you an overview of which is best based on defaulted payments.
What is a payday loan?
A payday loan is a short-term loan that usually lasts between one and three months. This loan amount is usually £1,000 or less and is designed to be repaid on the next payday. These are generally used by those in a financial emergency and can be used to pay unexpected bills or pay for some emergency car repairs if needed and can be applied online using a payday loan direct lender uk service.
What is an overdraft?
An overdraft is an amount of money allocated from what is held in the bank account that an account holder can use if needed. If the account holder has an overdraft, they will have to repay it to the bank until it is cleared. However, different banks have different interest rates on overdrafts, which can lead to increased debt if left unchecked. So it’s important to watch your spending and make sure you never spend more than you can actually afford. This will help you be financially stable in the future.
Understanding Overdraft Overpayments
As with any type of loan, there are additional charges for any missed repayments and the same goes for an overdraft. For each day you are in your overdraft, your bank charges an additional fee on top of the amount you already owe them. To help you understand the difference between these different banks, we have put some of the fees below:
|Bank overdraft fees||The amount per day|
|natwest||£6 per day|
|Halifax||£8 per day|
|TSB||£5 per day|
|HSBC||£5 per day|
Understanding the Risk of Payday Loans
Although the payday loan may seem like the cheaper option of the two, it is not without risk. A payday loan can also pose a risk if you miss a repayment. Default payments have been capped by the FCA at £15, which can protect those struggling to pay. This can have a significant impact on your credit score in the future and could limit your chances of being accepted by your chosen lender.
Which is best in a financial emergency?
While there’s no one-size-fits-all solution to finding financing if you find yourself in a financial emergency, it’s important to consider the potential risk this can pose to your credit score. You should then determine whether or not applying for a payday loan will be better for you than going over your overdraft.
Whether you are new to the world of managing your finances or are currently struggling right now and need financial assistance during this uncertain time, there are several options to choose from.
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