When it comes to short-term finance, the two most popular options available are payday loans and an overdraft facility. There are clear advantages and disadvantages to both.
If you’re trying to decide between the two, it helps to take both their advantages and disadvantages into account. What may be right for one person may not be right for another, therefore you need to take your own personal circumstances into account.
What’s the difference?
An overdraft is a facility offered by your bank. It enables you to go over your available balance. There will be interest applied to your account for going into your overdraft, but you won’t get the high fees associated with going over your balance when an overdraft facility isn’t in place.
They are simple to set up, though they aren’t always easy to receive. It isn’t guaranteed that your bank will allow you to have an overdraft. Even if they do, it might not cover the amount you are going to go over by.
Payday loans are small short term loans that typically offer anything from £50-£1,000. The money has to be paid back, along with interest, on your next payday. You know exactly what fees are included in the loan and you can often get the money you need on the same day.
They come with high-interest rates, but they are based on an annual percentage. As you will only be taking the loan out for 30 days, the high rates don’t affect you. However, if you miss a repayment you will be charged numerous fees and added interest.
Which is better?
For years many people have assumed that overdrafts are better than payday loans.
However, it’s recently been announced that bank overdraft fees can be even more expensive than a payday loan. The Daily Mail reported how some overdraft facilities were costing people twice as much as a payday loan. This has led to a probe into the charges. Payday loans, when used correctly, can be an ideal short-term cash flow solution. The key is to ensure you are only borrowing what you need.
I’d also recommend borrowing from an established and highly visible company, while the PR of a loan company is never going to be great, at least with a company like Wizzcash you know they’re highly publicised and actively engage in making themselves available to communication and with their customers, which is more than you’ll get with some of the lesser known Brands. There are a lot of irresponsible lenders out there and they prey on vulnerable people. The trouble is if you inadvertently opt for a digital loan shark you could end up in a lot more financial trouble than you are currently in.
There are advantages to both options, but payday loans do currently come out on top. They are easy to apply for and anybody is welcome to apply.
While banks have strict lending rules, payday loan lenders tend to be a lot more relaxed. Providing you have a bank account and can pay the money back within a month, you are likely to be accepted for a payday loan.
Just be sure to read through the requirements to ensure you’re an ideal applicant before applying. If you get turned down it can have a negative impact on your credit rating.
Get exclusive access to the free resources!
Join 5,000 others to get access to 20+ free printables related to budgeting, traveling, and meal planning with new prints updated weekly.