Should You Take Out a Payday Loan or an Unarranged Bank Overdraft

In the last few years the way that we can look at our personal finances and take out new lines of credit has changed quite dramatically. It wasn’t too long ago that you could walk into your local high street bank, ask for the manager by name, and speak to them about a personal loan or an extension of your overdraft to help get you over a short-term problem that you had an exit strategy for (or at least they could help you develop an exit strategy for). Since the economic downturn a decade ago though, things have changed, and the personal nature of your relationship with your bank has undoubtedly changed for the worse.

No longer can we build these personal relationships with the staff at our local banks. Many branches have already closed, leaving us with big, city centre, soulless banks where you will never be able to build up a proper relationship with a bank manager. Instead, you are left with automated processes and no quick fix to short-term problems.

What we are left with is a situation where many people who are facing short-term financial difficulties are often choosing between whether to go into their overdraft without informing their bank, in the form of an unarranged overdraft, or taking out a payday loan from a short-term lender. We are here to help you figure out which is the best option for you should you be in this circumstance and unsure of what to do.

There are always fine details and conditions attached to any overdraft with your bank. The small print is something that hardly any of us ever entertain when faced with, but it is vital in understanding your legal responsibilities with any financial product or line of credit, and your overdraft is no different. If you have an overdraft and go over the limit, or you do not have an overdraft and you are about to go over your limit and into an overdraft without arrangement, most banks will issue you with a charge of some form.

A formal overdraft arrangement with your bank will come with monthly repayment conditions, or monthly fees and interest that you must pay to keep the overdraft. Let’s look however at the cost of an unarranged overdraft. If you take out £100 or above, you could be hit with a daily charge that is anything between £20 and £90, and in some cases, you could be hit with a daily charge of £5 until you are back above your agreed threshold.

With a payday loan from a modern and responsible payday loan lender you can see clearly how much money a loan is going to cost you before you have even sent the application through the website. The longer you take to pay back a loan, the higher the interest will be, but you would expect to pay between £20 and £30 in interest over the same period as the above situation. It pays off to be as clear as possible about your choices, and to see how much money it will cost you in the long-term whether you choose an overdraft or a payday loan.

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