It might seem confusing to you to choose whether to apply for an overdraft or a cash loan. Nevertheless, you wouldn’t want to fall into a snare of not being able to pay up your debts.
You wouldn’t want to pass through the frustration that comes with being a debtor.
Why don’t you hurry now and study this article to the end? You’ll grab everything you need to know about cash loans and overdrafts. And which one to go for when faced with financial problems.
Meaning of Overdraft
Investopedia.com defines it as an extension of credit granted by a financial institution to a customer when the account balance reaches a zero level. Depending on your needs, the overdraft service offered by your bank often provides you with a useful benefit.
For example, it can save you the frustration of having a purchase rejected, and help you cover important bills.
The interest paid on the credit is known as overdraft fees. And this is usually expensive. Banks charge a commission when it is generated, interest on the daily balance, and a charge for regularizing your account.
What Are Cash Loans?
These are personal credits that give you freedom in the use of the requested money. That is, the lender doesn’t grant you these loans with a particular objective, as in the case of mortgage credit.
In this way, you can use the money from these credits to cover any need, opportunity, or desire that you have.
A characteristic of these credits is that they are granted expeditiously and without the application of many requirements. They allow you to face emergencies, take advantage of an investment opportunity or satisfy a desire.
A perfect institution to borrow cash loans is Alberta online payday loans. Once your application is approved, the money from the credit is immediately deposited into your account.
Comparing the cost of a payday loan with a line of credit, overdraft protection on a chequing account, and a cash advance on a credit card (Based on a $300 loan for 14 days)
Pros of Overdraft
- It’s ideal when you run out of liquidity and need to make immediate payments.
- Allows you to make payments on time.
- It is easier and faster to get when compared to traditional credits.
- You can incur it at any time, as long as the bank does not withdraw the agreement.
Cons of Overdraft
- High cost in commissions and overdraft fees.
- High-interest fees, since interest is charged on a daily balance.
- It can damage your credit history if you do not cover it before the end of the month.
- Your overdraft limit can be reduced at any point in time, by your bank.
- It usually doesn’t have repayment terms. So, it can easily remain permanently in your account. And this can affect your credit grade negatively.
Pros of Cash Loans
- It is fast and simple to acquire.
- It has the possibility of financing an immediate cash flow requirement.
- The requirements are not much.
- Even if your credit grade is not good, you can easily get a cash loan.
- It is a good avenue to build up your credit rating. If you’re made some financial errors in the past, which have ruined your credit rating. Applying for bad credit cash loans can help build your credit.
Cons of Cash Loans
- Short-term repayment.
- Some cash loans might be protected against your collateral properties.
- It can affect your credit score when you don’t pay up as at when due.
Which One Is More Expensive?
Do you think that overdraft is cheaper when it comes to borrowing loans? Research has shown that overdrafts are more expensive when compared to cash loans. It was observed that unplanned overdrafts were 4times more expensive than cash loans.
Have in mind that these rates are for unplanned overdrafts. For example, assuming you borrow $100 overdraft loans for a period of 28days, your overdraft fee will range from $30 to $100, depending on the bank you’re using.
Don’t you see that overdrafts are far more expensive than cash loans?
It’s very rare for your banks to let you know about these unplanned overdraft charges when you’re opening an account. So, you might discover these charges only when you’re applying for an unplanned overdraft.
Although some cash loan lenders might charge up to an interest rate of 1500% APR, they are still very cheap when compared to an unplanned overdraft.
Now a new regulation has been put in place by FCA which states that cash loan lenders can’t charge more than 0.8% per day. This means that if you borrow $100 for a period of 28days, you will be charged an interest rate not more than $22.40.
Don’t you see that cash loans are far way cheaper than overdrafts?
Between Overdraft and Cash Loans, Which One Should You Choose?
When you’re in a state of emergency and you need urgent credit assistance, it is advisable to apply for cash loans to avoid falling into the problems of unplanned overdrafts.