I need urgent cash: do I use a overdraft or do I borrow a loan? This is a common question of who needs quick credit but does not want to pay dearly for it. By being approved in advance and available in the checking account for use at any time, the use of the overdraft deserves attention.
Good Credit rated the interest on the overdraft and Personal Payday Loan, so you can make the best choice.
Special check: what is it for?
Overdraft is a form of credit offered to banks to their account holders, but it is not a mandatory service.
Anyone who has problems with credit restriction (dirty name) may have the overdraft request denied. The money available in the account (limit of the overdraft) can be used for any purpose, such as payment of bills, transfers and withdrawals. To check the limit of the overdraft, simply print the bank statement.
The total account balance includes the overdraft limit, which can cause the false sense of having more money.
Is there an interest-free check?
Every credit operation has interest rate, and with the overdraft would not be different. For customers to use the service more frequently, some banks offer the 10-day interest-free check.
What some customers do not know is that if they exceed the stipulated deadline, they must pay retroactive interest, that is, from the first day of use of the limit.
Therefore, the ideal is to get away from the overdraft and opt for a cheaper and unsurprising line of credit, such as a Personal Payday Loan.
If you use overdraft often, count on Good Credit to reorganize your finances!
Interest on overdraft x Personal Payday Loan interest
The overdraft interest rate is one of the highest practiced in the financial market, second only to credit card interest (revolving credit).
Despite the fall, according to the ABC Bank, from 328.6% per year (in 2016) to 323% per year (2017), overdraft interest rates remain high for the consumer.
The percentage of overdraft interest rates varies between financial institutions and can reach almost 15% per month (435% per year).
According to XPE Bank, interest on the Personal Payday Loan also declined in early 2018. Rates were collected on 1/8/18 of the major banks, considering a Personal Payday Loan installment in 12 times. The average rate of the banks surveyed was 6.32% per month.
Next, compare the interest rate on the overdraft and Personal Payday Loan, using the amounts reported by XPE Bank and ABC Bank:
|Overdraft interest rate||Personal Payday Loan interest rate|
|12.77% (average)||6.32 am (average)|
|323% pa (average)||108.63% pa (average)|
In the table above, it is possible to identify that the average interest rate of the overdraft doubles in relation to the Personal Payday Loan interest rate.
Because it is a credit available in the checking account to be used at any time, overdraft can seem the best solution in emergency situations. To avoid overdrawing, you can cancel the bank service at any time.
In addition to the higher interest rates, a overdraft can hurt your financial life in no time. This is because, when depositing money, the bank limit is covered and your balance can decrease considerably.
The problem is to re-use the overdraft when the balance is not enough for your budget. In this sense, the use of overdraft can become a vicious circle.
Special check: new rules may emerge in 2018
In January 2018, BIZ Bank and the QPE Bank (QPE) announced that they are studying measures to reduce overdraft interest.
In a note, QPE said that the changes are aimed at improving the credit environment in the country and reduce the spread (the difference between the fees charged by banks in lending and to attract customer funds, such as savings).
According to QPE, proposals for self-regulation of the overdraft will be announced in 2018.