What are the Cheaper Alternatives to Overdrafts?

It is always a good idea to compare borrowing options before you actually borrow any money. This is because you will otherwise find that you could end up spending more money than necessary. Sometimes the interest rates, costs and fees of borrowing can be very much more expensive for some types of loans than others and although they may provide a very different service and that explains the cost, it is good to make sure that you feel they are offering good value for money. So, with an overdraft, you will find that it is extremely convenient to use once it is arranged as you will be able to get the money as soon as you need it. However, you may feel that the 35% – 40% interest rates are too high and that you would like to try to find something cheaper. There could be some enticing alternatives.

Credit Card

Some credit cards do have very high interest rates but some will be cheaper than an overdraft. You will have to take a look and compare them t make sure that the one that you are choosing is lower. A credit card can be handy for when you are buying online or from high street shops as most will accept them as a form of payment. However, if you use a credit card at a ATM then you will often be charged and you will have to start paying interest on that withdrawal right away, which means that you will find that it is an expensive way to get cash. However, when you use it in shops and online, you will be charged no interest immediately. You will receive a statement and that will tell you how much interest you will be charged and when but you will get the option of paying off what you have borrowed before a certain date and you will be charged no interest if you manage that. You will also have the option of repaying just a small payment which covers the costs and a little more and then you can leave the debt outstanding as long as you wish but you be charged for that.

Store Card

A store card is similar to a credit card in the way that you are charged interest. You will only be able to use it in limited places, normally only in branches of the store that issued it. You will also not normally be able to use it to draw cash. However, you can use it instead of paying for items in that store and you will be able to delay payment until your statement arrives or even longer if you want to pay interest on it. The interest rates could be higher or lower than an overdraft, you will have to check this as they will vary between different store cards.

Personal Loan

A personal loan from a bank or building society tends to have lower interest than an overdraft. However, they might need to be for significantly higher amounts of money. The specific amount will depend on the lender, but often there a large minimum that you will have to borrow. This could seem good because you will have more money to spend, but it means that it could take longer to repay the loan. Even if the interest rate is lower, the loan could cost more because you have it for longer and you are paying interest on a larger amount of money. Therefore, to properly compare the cost, you will need to calculate it in monetary terms and then compare that.

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