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Tuesday 13 November 2018
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Is a Payday Loan More Cost Effective than an Unarranged Overdraft?

We are always looking for the best value in any product or service we purchase. When it comes to taking out credit through a finance provider we have multiple choices at any given time. If you are in a spot of short-term financial bother, you might be wondering about the options open to you. It might just be that you need a small amount of cash to pay an unexpected bill, or to cover the cost of repairs on your car. If your payday is not for another week or two and you’ve exhausted all avenues in terms of loaning money from friends and family members, we are faced with two popular choices, whether to take out a short-term loan or to dip into our bank account with an unarranged short-term overdraft.

If you think your first port of call should be to use an informal overdraft with your current bank, here is some information that might be important to you. If you have a bank account, you’ll know that there are certain terms and conditions that come with it. In some cases you can agree an overdraft with your bank. This overdraft arrangement will most likely have interest fees and monthly charges attached. If you go over that amount, without prior agreement with your bank, this is called an unarranged overdraft and there are fees attached to this for you to be aware of. The cost of taking out £100 above your arranged overdraft limit will bring with it on average a charge of anywhere between £20 – £90, with some banks issuing a daily charge of £5 until you repay the money owed and return to within your previously agreed limits. Depending on the time you need in which to pay back the amount, is an unarranged overdraft the right option for you?

Alternatively, a payday loan offers you the chance to take out an instant loan with ease. There will always be interest and fees attached to a payday loan, but if you choose to use a responsible lender for your short-term loan you will understand the fees clearly before agreeing to taking out the loan in the first place. You will have the chance to choose the repayment terms that suit you most, including the length of time to repay. The longer you choose, the higher the total amount due to pay, but it is clear from the very beginning what you will be expected to pay back, there should be no hidden charges when acquiring a loan from a responsible lender. When compared with the above fees of taking out an unarranged overdraft with your bank, a similar £100 payday loan over the same period of one month would incur fees of between £20 – £20.

You may have some reservations about taking out a payday loan, but as you can see the fees attached are in fact less in most cases than when you take out an unarranged overdraft with your bank. As long as you understand your repayment terms, a short-term loan could be the best option for your immediate financial needs.