Short term loan is always better than over drafting your bank account because it has a fixed payment. You know exactly how much you are expected to pay when the due date arrive so you can plan accordingly. With overdraft, you can risk withdrawing more than you can afford to pay back and get stuck in a financial problem. Short term loans often will allow you decide on the loan term period to suit your financial situation. Once your loan is approved, you will be able to have access to the funds in 24 hours.
Overdraft is not lending a specific amount of money but rather a maximum level you can withdraw. Most overdrafts charge fees and the rate you pay will depend on the current account type. The typical interest rate you pay for overdraft is between 16 – 18% for authorized overdraft. For unauthorized overdraft, the fee you pay will be about 30%.
Many people think that overdraft is cheaper compared to taking a short term loan but this is false. Actually, overdraft is much more expensive because there are a lot of fees you have to pay. Most people tend to forget about the agreed limit and withdraw more than they are allowed. If you exceed the agreed limit, you will be charged with a penalty fee of about $30. Furthermore, they will raise the interest rate so that you are charged with even higher interest on the withdrawn amount. Many banks also require you to pay for an overdraft protection fee monthly. The average overdraft protection fee you have to pay every month is about two hundred dollars every year.
Besides being expensive, another problem with over drafting is that it does not have a fixed repayment schedule. Because of this, you may not be committed towards repaying back the loan every month as you would if you use a short term personal loan. As a result, the balance will roll over from month to month and accumulate up to a very high level. It gets even harder to repay your debt when you already have accumulated a high level of outstanding balance in your account. Regular repayment of the short term loan can help you to cultivate a good money management habit. You will learn how to plan your cash flow and budget accordingly. When you repay for your loan on time, your credit score will also slowly improve and you will eventually get a good rating on your credit report.
Since you can freely access the money in your overdraft account, it can be tempting to rely on it as an extra source of your income. Withdrawing the money from your current account and using it to pay for everyday expenses can cause you to exceed the agreed limit. You may forget about repaying back and end up getting charged with expensive interest rate and land in more serious financial problems.
In conclusion, overdraft may seem like a fast solution for people who have run out of money in their bank accounts but it can also get very expensive at the same time. Choosing a short term loan for your temporary financial problems will help you to save a lot of money on the fees and interests. if you are thinking about short term loans, make sure you visit a number of websites online and consider personal loans, installment loans, peer to peer loans and all of your financial options before making a commitment to borrowing money. Most financial experts always recommend that you have a cooling off period prior to any loan applications.