When you need funds to cover a financial shortfall, you might consider taking out a personal loan. However, there's another option that might be more suitable for your needs: an overdraft facility. An overdraft is a type of credit facility that allows you to borrow money against your current account balance. Here are five reasons why choosing an overdraft facility over a personal loan might be the right choice for you.
An overdraft facility is a flexible way to borrow money. Unlike a personal loan, where you receive a lump sum upfront and repay it over a fixed period, an overdraft allows you to borrow as much as you need, up to a pre-agreed limit, whenever you need it. This means you only pay interest on the amount you borrow, and you have the freedom to borrow and repay as your financial situation changes.
For example, if you have a sudden unexpected expense, like a car repair, you can dip into your overdraft to cover the cost. Once you've paid off the repair bill, you can reduce your overdraft balance or even pay it off entirely. This flexibility means you only pay interest on the funds you borrow, making it a cost-effective way to manage your finances.
Lower interest rates
Another advantage of an overdraft facility is that it often has lower interest rates than personal loans. This is because the risk to the lender is lower, as they're only lending you money up to your pre-agreed limit. This means that if you only use your overdraft occasionally, you'll only pay interest on the money you borrow, and it can be a more affordable option than a personal loan.
Easy access to funds
When you need money quickly, you don't want to wait days or even weeks for a loan to be approved. With an overdraft facility, you have instant access to funds. Once your overdraft is set up, you can withdraw money from your current account or use your debit card to make purchases up to your pre-agreed limit.
This easy access to funds can be particularly useful for unexpected expenses or if you're waiting for a payment to come through. With an overdraft, you can cover your costs in the short term and repay the amount when your payment arrives.
No set repayment schedule
Unlike personal loans, an overdraft facility doesn't come with a set repayment schedule. Instead, you can repay the amount you borrow whenever you have the funds available. This means you have the flexibility to manage your finances in a way that suits you best. For example, if you have a particularly expensive month, you might choose to only repay the minimum amount due on your overdraft. However, if you have a windfall, you might choose to pay off the entire balance in one go.
Build a credit history
Using an overdraft facility can be a good way to build your credit history. If you use your overdraft responsibly, by borrowing and repaying the amount you need, you can demonstrate to lenders that you're a reliable borrower. This can be particularly useful if you're looking to take out other types of credit in the future, like a mortgage or credit card.
In conclusion, an overdraft facility can be a flexible, affordable, and convenient way to manage your finances. With easy access to funds, lower interest rates than personal loans, and no set repayment schedule, it's a good option for those unexpected expenses. If you're looking for a cost-effective way to borrow money, an overdraft facility might be the right choice for you.
Need a Personal Loan?Apply Now