Payday loans or bank overdrafts, which one should I choose? Read on with Personal Loans Now to help you decide whether it is better to go into a bank overdraft or take out a payday loan when unexpected bills crop up.
- Payday loans or bank overdrafts
- Why should I choose to take out a payday Loan?
- What are the drawbacks of going into a bank overdraft?
- How has the FCA helped out with payday loans?
Payday Loans or Bank Overdrafts
Are you are a little short of cash this month? You may be thinking about the best way to make your money stretch further. It is quite likely that you will need to decide between going into an overdraft or applying for a personal loan. It is arguably better to channel your spending habits and live within your means. This will prevent you from having to seek financial aid from banks and payday loan companies. Occasionally emergencies occur, and life tends to throw you a financial curveball. This may leave you feeling stressed out about the way you’re going to make it financially through the month. We hope to show the truth to you whether choosing to go into bank overdraft is more cost-effective than taking out a short term loan. The facts may surprise you!
Why Should I Choose to Take out a Payday Loan?
It can be said that nearly all people in need of a bit of extra cash for the month will think that going into an overdraft is the ideal solution (that or using their credit card). However, research conducted recently by Which? has suggested that it is cheaper in most cases to take an instant loan for bad credit, than falling into an unplanned overdraft. While payday loans have, previously, been given a bad name, it’s interesting to see how the latest research will alter people’s opinions. Particularly, when it has been demonstrated that some overdraft penalties can accumulate into four times as much as that of payday loans!
What are the Drawbacks of Going into a Bank Overdraft?
Some banks are shown to charge from £6 to £10 per day for going into an unarranged overdraft. There are other banks that charge something along the lines of £80 per month for going into an unplanned overdraft, which may accumulate over time. In comparison, the FCA has set rules in place to limit how much payday lenders may charge you daily. This is to cut down the amount you will need to pay back on top of what you’ve borrowed. Banks, on the other hand, aren’t required to do the same. So, considering your payday loan lender can only charge a maximum of 0.8 percent of what you have borrowed. If you have borrowed £100, you will only have to repay £122.40. Instead of being billed £80 and making you £180 short the following month, if you went into an unarranged overdraft with your bank!
How Has the FCA helped out with Payday Loans?
With payday loans, you’re constantly made aware of the amount of interest that you will need to repay, on the amount you choose to take on loan. Banks are more difficult to keep track of, since often you may not recall about the charges listed in your terms and conditions. This is usually until you’re unfortunate enough to need to resort to spending into your overdraft. While arranged overdrafts are more affordable, many regular accounts do not come together. Payday loans have become cheaper thanks to the FCA ruling that came as a consequence of previous debt issues due to the uncapped interest rates. The cap enforcement means that payday loans could be significantly safer over bank overdrafts. This may result in a more viable alternative if you’re searching for a short-term cash loan.
Conclusion – Payday loans or bank overdrafts
The FCA has set rules in place to limit how much payday lenders may charge you daily. If you require a loan to cover monthly bills i.e. your monthly car expenses, it is usually more worthwhile to take out a payday loan than going into an unarranged overdraft. This is because the banks have no limits on how much they can charge daily.