Most people that have a current account will have the option of applying for an overdraft and some may already have the overdraft set up when they are set up with the account. Those without an overdraft option tend to be those people with a poor credit record. These overdrafts can seem like a great thing because it means that you will be able to get some extra money when you need it. However, it is worth thinking hard before you do this.
Overdrafts come with high charges and these are something that you should try to avoid if you can. It is worth noting exactly how high the charges are as well as many people do not think about them when they use the overdraft facility. If you use an unauthorised overdraft you can find that the charges can be the highest you will pay for any type of borrowing including payday loans. Your terms and conditions for your current account will have details of how much the charges are. Your bank statements should tell you how much your authorised overdraft is. If you are not sure of either of these then you can ask your bank to find out. It is worth knowing so that you can be sure of how much any borrowing could cost you.
The problem with an overdraft is that the charges are daily. So every day that you are overdrawn will incur a charge. There may also be a fee for going overdrawn as well. So until you have some income or can transfer some money to cover the charge you will find that the charges will be building up. This could mean that you will end up having to pay a really large amount in charges for being overdrawn.
The charges will be less for an authorised overdraft than an unauthorised overdraft. This means that it is wise to try to get the biggest authorised overdraft you can, if you think that you will be getting overdrawn, in order to minimise the amount that you will have to pay. Of course, it is far better to try to avoid getting overdrawn at all so that you can avoid those charges altogether.
In order to do this it is important to budget during the month to make sure that you have enough money left to manage until you next get paid. You also need to make sure that you keep checking the balance of the account so that you are aware of how much money is in there so you do not go overdrawn by mistake. You can usually get a balance at a cash machine or you may have online banking that you can use as well.
Many people see their overdraft as a place to turn to if they need money. However, because et is so expensive it should really only be used in an emergency when there are no other options. It can be much better to use other forms of borrowing instead. There are many cheaper ways to borrow money which you should consider. A credit card, for example, can allow you to spend money without being charged interest for a certain period of time. If you set up a direct debit to pay off the full balance just after you get paid, then you can use it as a way of getting some free money. Just be careful to make sure that you do have the money to pay the full balance and that you do not use it to spend more money than you can afford.
If you need a lot of money then a personal loan can be a cheaper option. Try to borrow as little as possible though, as the more you borrow, the more expensive the loan will be. You also need to make sure that you are capable of making the repayments. You may find that you have to pay it back over many months or a year and so you will need to be confident that you will be able to come up with that money each month or else you will have extra charges added to it.
So we should definitely be concerned about overdraft charges. They are some of the highest fees for borrowing that there are and so it is really important to know what the charges are for your bank and how much you have been authorised to borrow. Because of the high costs it is wise to try to avoid using an overdraft unless you have to by budgeting well and keeping a close eye on how much money you have in your account. If you do need to borrow then it is worth exploring cheaper options as they will save you money, but you will need to check to make sure that they are cheaper in the long term and that you will have enough money to be able to make the required repayments.