Compare Loans and Overdrafts
Most people in modern day society have a bank account in one from or another. Sadly, the demands of everyday life often mean that we have to ask our bank to provide us with some from of credit facility, whether this be to help with a short term liquidity issue or to provide us with capital to invest in a purchase or essential item of repair for the house or the car etc.
When we go cap in hand to the bank we may ask for an overdraft facility or a cheap loan to help with our pressing need for credit. But what is the difference between the two and which is the more likely to be suitable? A Bank Overdraft These are most suitable for helping with short-term financial problems.
In basic terms, an overdraft is an agreed amount by which the bank will allow you to overdraw against your account. If, say, you have £1000 in your account and an overdraft facility of £1000, you will legitimately be able to spend up to £2000 without incurring any charges for overdrawing. This can be very useful if you have an unusual monthly expense to meet or to deal with annual payments such as home insurance or motor insurance premiums.
When you open a bank account you will need to ask whether you have an overdraft facility. If the account does not offer a free overdraft facility you will need to arrange one with the bank, who may ask you to pay a fee to set this facility up. Some overdraft facilities ask that you pay interest on the overdrawn amount whereas some others allow you to withdraw up to the limit of your overdraft facility without the payment of any interest at all. Account holders should be extremely wary about exceeding the overdraft facility because the penalties that banks charge for unauthorised withdrawing can be quite punitive.
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