Do you regularly use your overdraft as though it’s a line of credit?
You’re not the only one — research shows that more than 13 million people view their overdraft as a way to borrow when they’re short on cash.
Treating your overdraft like this can result in massive fees, so it’s smart to look at other options.
If you’re considering using an online payday loan instead of going into your overdraft, check out the helpful advice below.
How Do Payday Loans Work?
Payday loans allow you to borrow a certain amount of money using your paycheck as security. When you take out a payday loan, you agree to pay it back in full on the day that you get paid. This is very different from installment loans, which takes lots of time to pay back.
You’ll be charged a fee, usually per every $100 you borrow. So with a fee of $20, your total fees on a $300 loan would be $60. When you repay your loan, you’ll pay the fee at the same time.
However, if you’re unable to pay the fee, then another fee will be added on top. If you struggle to pay for months in a row, this can get expensive.
How Do Overdrafts Work?
An overdraft is essentially a cash advance from your bank. If you try to spend money and there’s not enough in your account, the bank will ‘lend’ you what you need to make the purchase.
However, your overdraft will come with fees, and these can be steep. Each time you use your overdraft, you’ll be charged another fee, even if you’re only making a small purchase.
On top of this, regularly using your overdraft can damage your credit score. Having a low credit score can prevent you from using your overdraft in emergencies in the future.
Which is the Best Option?
If you’re short on cash and need to borrow, payday loans and overdrafts are tempting. The option you choose will depend on the fees charged and your individual financial situation.
If you only need to make one small purchase and know you’ll pay it back within a few days, dipping into your overdraft might make sense.
However, if you need to make several purchases and won’t be able to return the money until you’re next paid, a payday loan could be the best option. You should always be certain that you’ll be able to repay in full to avoid high fees.
Payday loans can also encourage you to spend more mindfully. You’ll be able to plan ahead and borrow the minimum amount that you need to get by, instead of using your overdraft to buy whatever you want.
Using a one-off payday loan can help you to get out of the habit of using your overdraft which should help to reduce fees in the long run.
How to Choose an Online Payday Loan Provider
If you decide to take out an online payday loan, make sure you choose a reputable provider. Check reviews, make sure they’re fully licensed and compare fees with other providers.
Ready to take out a payday loan? Check out our same day payday loans now.
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