There are lots of different ways to borrow money and we may ask ourselves whether some ways are better than others. It is good to understand that different types of borrowing ill serve different purposes. Therefore, it will depend on our specific need as to whether an overdraft, for example will suit us. Therefore, it is good to know what the particular loan will offer and then we will be able to work out whether it will suit our needs.
Features of an Overdraft
An overdraft is offered as part of some current accounts to some people. The amount you can borrow will vary depending on the bank and it may also be determined by your credit score. It tends to be a relatively small amount – perhaps a few hundred pounds to a few thousand. It may also depend on what you ask for as there may be some room for negotiation with regards to how much you can get. The overdraft is only borrowed for a very short amount of time normally. As it tends to be on an account where you get money being paid in regularly, then when that money is paid in, it will repay the overdraft. There is no repayment schedule as such but it will just be repaid as soon as money gets paid in to the account. The money is access easily – as soon as you spend everything that is the account you can then use the overdraft which means that you will not need to apply and wait for the money, once you have organised the overdraft initially. The fee structure of overdrafts has recently changed and now lenders are only allowed to charge interest and no fees and just one rate so it is not confusing for borrowers and they can easily compare banks. It means though that the rates tend to be pretty high and are 35% to 40% APR which can be quite high compared to some other types of borrowing.
When is it Good to Use Them?
As the rates are pretty high it is good to try to avoid using overdrafts all of the time. However, it can give peace of mind to know that they are available to you if you need money in an emergency and that is really what they are designed to be used for. There are some people that have large overdrafts and leave unpaid for a long time. There is no pressure to repay the overdraft which can be good for people who do not want to panic about debt and want to repay it at their leisure but it does mean that you can leave it outstanding for a long time and this could mean that you will pay a lot in interest. It is therefore really important to make sure that you do only use them when necessary. If you want to borrow money for a long length of time, then there could be other ways to do more cheaply and it is well worth investigating these to see whether they will work out for you. However, if you need money really quickly, you may not have time to wait and organise a loan like this so the overdraft could help, but make sure that you repay it as soon as you can. It will repay automatically when you get paid, but it is sensible to think about whether there are ways that you might be able to do this more quickly. Perhaps by finding earning opportunities that will enable you to get some money before you get paid. This could include a salary advance, freelance work, online surveys or even selling things that you own and no longer need. It can be worth doing some research in to all the ways that you could earn money, but make sure that you use a reputable company that you know will pay you.
There are many of us that might consider asking for a larger overdraft. This is something which could be useful but there are always problems that could occur as a result. It is wise to think hard about this decision so that you make sure that you are making one that is right for you.
It is good to think about what you might gain form extending your overdraft. Of course, you would have access to more money, and this means that if you have an emergency and need money then there will be more there. If you max out your overdraft a lot, then it will mean that this will not be so likely as you will have more money available to you. If you often go overdrawn and then get an emergency, it will mean that there is more of a chance that you will have more money available to pay for any emergencies that come along. It can give you peace of mind to know that the extra money is there and that you will not be so likely to struggle to make ends meet as there will be money available to help you.
Overdrafts cost money and for as long as you have money overdrawn you will be paying for it. Overdrafts tend to be charged at 35% – 40% interest which is pretty high compared to some other loans as well which means that you will also be paying quite a bit for the privilege of having this money. You may also find that because you have the opportunity of borrowing you will not budget so carefully because you know that it is there to fall back on. While it can give peace of mind to know it is available, you should still work hard to make sure that you only use it if you really have to. Some people will be better at this than others. Some may just be tempted to spend it because it is there and if you feel that you are likely to do this, then it could be a good idea to avoid getting the extension to the overdraft. If you are tempted to use it, then you could just find that you will get into debt frequently and then struggle to manage to pay it off and pay for everything you need the following month. It can be very easy to get into debt difficulties if you are not careful and keep a close eye on your spending. Therefore think about whether you are likely to budget and keep a close check on everything or whether you think that there is a chance that you will get into trouble and end up spending a lot more than you can afford or just buying more than you need and paying a lot of extra money due to the interest you are charged for doing so.
You will also find that if you keep going overdrawn it will show on you credit record. If you have access to more money then you will be likely to get overdrawn for more money and this will mean that it looks even worse because anyone looking will see that you are borrowing more and more. If you then want to get a mortgage or rent a home, you may find that this will put off those looking and you may find it difficult to find a good home or to borrow money in the future. It is therefore worth keeping this in mind as well when deciding whether to extend an overdraft.
It can be a concern for many people as to when they should consider taking out a mortgage. It might be that they always intend to buy a home, but knowing when the right time to do this is, can be difficult. There are some main things that could influence the decision though which could help with it.
Being Happy to Stay in One Place
It is important to be aware that once you buy a house it will tie you to a place. This means that you will need to be in a position where you know what location you want to stay in. This could be near to where you work or near to your family and you need to think about this and be sure that you will not move. Obviously, you can sell up and buy a home elsewhere, but this is not easy as it can take time and so it is better to try to avoid doing it that often. Some people will rent out their home and move away temporarily, which can work, but it is not always easy to find tenants and they may not look after the property, so when you return you may have a lot of work to do to get it back into a condition that you want to live in. You could rent it out and buy elsewhere, but you will need to swap to a buy to let mortgage, which is a lot more expensive and you will have to pay for all the safety checks and things like that which are mandatory when you are renting out a place.
Having a Permanent Job
It is important to make sure that you have a permanent job. Not only will this mean that you have a better chance of managing the mortgage repayments that you will always be confident that you can pay it. You will also find that you will be a big factor in where a mortgage company will take you on. They will need to see that you have a permanent job and that you have been in it for at least 3 months, probably longer and certainly have worked through any probation period that you might have. You will need to think about that you will not feel so free and easy with regards to switching jobs either as you will have a big commitment to paying the mortgage and so you will need to make sure that you are doing something that you are happy with as well as something that you think is likely to be secure.
Having a Deposit Saved up
It is also important to have a deposit saved up. You will need to think about how much you might need and also how you might afford to save up. It is important to think about how you are going to do this. It is a good idea to get into the habit of putting some money aside each month and also perhaps having a dedicated savings account for it so that you can see the money building up to motivate you and do not accidently spend it on other things. It could be a good idea to put in a certain amount in each month using a regular transfer so that you do not forget. Try to find ways to increase this as much as you can such as spending less by finding cheaper items to buy and buying less things as well as looking for opportunities to earn more. Then the deposit will grow more quickly which means that it will be easier for you to buy a home.
There are lots of questions that are often asked about payday loans. This is something which is not really surprising as they are not so well known as other loans types. It is also something that is really important. It is good to make sure that you know lots about the loan and how it works before you take one out. This is the only way that you can be completely sure that you will be making the right decision with regards to whether you should borrow, have the right loan type and the right lender. Therefore, you may have all sorts of questions and queries. Some will be able to be answered by asking the lenders or looking at their websites or reviews or by asking others. However, there are some questions which might be a bit broader and harder to answer.
Who are They For?
It is worth thinking about who the loans are for and then you will be able to work out whether they will be suitable for you. The loans started because it was seen that there was a gap in the market where those people that did not have a good credit record would not be able to borrow money even if they needed it in an emergency. This is where payday lenders came along and filled that gap by providing loans without the need of a high credit score. They also provided them very quickly so that they would be able to help people when they needed money in an emergency. Therefore, the loans were best suited to either people that needed money quickly or people who did not have a good credit record.
Should Young People Use Them?
It is important to think about whether there are certain people that should or should not use them. However, age is not really a factor. You do have to be over the age of 18 to be able to take one out and so you cannot get one if you are too young. However, apart form that, there are not really any age restrictions. However, it is worth making sure that you are in a good situation to take one out.
The most important thing to consider is how easy you will find it to repay the loan. Like any loan, there will be extra charges if you miss the repayment on a payday loan. The difference with this sort of loan though, is that there is only one repayment. This means that you have to repay all of the money that you have borrowed as well as the interest and charges on it, in one lump sum. This can be a large amount if you have borrowed a lot and so you need to make sure that you will be able to pay it. It is therefore very important to make sure that you know exactly how much you will need to repay to start with. Then you will be able to think about whether this is an amount that you will be able to afford. Ask the lender for the exact figure and then look back at your bank statements to see whether this is an amount that you will normally be able to afford. Bear in mind that although you will be making that payment on the day that you are paid, so there should be money available, you will also have to pay for other things too. Note down the cost of all of your other essentials that will leave the account that day and see if there will still be enough. Also think about the other things that you have to pay for and whether there will be enough for those as well. You may be able to cut down spending in some areas but there will be a limit to this and you need to make sure that you will be able to afford everything that you need.
You may not have heard of a quick loan and it is a really good idea to get an idea of what they are. This is because, when you do need to borrow money, you will need to find the right loan to suit your specific needs. This will be easier if you know what all the loans are and how they work so that you can choose. Quick payday loans are a type of loan which many people may not have heard of and may not have used before. It is therefore worth knowing more about them. One of the most important things to learn about any type of loan is how they need to be repaid. This is because you do not want to miss a repayment as this will mean that you have to pay extra fees.
How to Repay a Quick Loan
The quick loan has to normally be repaid in one lump sum. This means that you will need to repay the money that you borrowed as well as the fees and interest in one go. The repayment will normally leave your account on the day that you are paid. The lender will set up a direct debit to take the payment automatically so you will not forget to pay. It will also go out on the day that you get paid which means that there is more of a chance that you will have the money available to repay it. However, it does mean that you have to find a lot of money in one go and have enough left to be able to pay for everything else that you need to buy in the month as well. It is wise to make sure that you will be able to manage this.
How to Ensure you can Repay
The first step is to find out exactly how much you will need to repay. Do not try to guess as you may underestimate it. You might be able to find that there is a calculator on the website of the lender. You may also find that it is easier to contact the lender and ask them as they will be able to calculate it for you.
Once you have this figure you will be able to then take a look at the amount that you are paid to calculate whether there will be enough to cover the loan. Hopefully there will be. However, you also need to check and see what other payments are leaving your account at this time as well because you will find that you will have other things to pay. It is likely that you will have rent or mortgage, utilities, contracts, insurance, loan repayments and things like this. It is well worth checking what you always pay and then you will be able to add that up and see whether there will be enough money left to pay for these as well as repaying the loan. You will also need to think about other payments that you will make more frequently such as buying food, paying for fuel or public transport and things like this. Then see whether you will still have enough.
If you do not have enough, then you will need to consider whether you are able to find a way to afford it. You might be able to find ways to pay less for the items that you are buying or even cut down on them. You might be able to raise enough this way but if not, then your only other option is to find a way to earn more money. You might eb able to sell some things to raise money, do some extra hours in your job, find a second job, do some freelance work or some online work. There are possibilities but you need to make sure that you are confident that you will be able to raise the money that you need before you take on the loan.