Is a Payday Loan Better than an Unauthorised Overdraft?

If you need money quickly then it is worth comparing your options before just borrowing form the first place that you think of. There are lots of options that you could pick from, even if you think that you will not get a loan and it is worth comparing them. For example, you might just go for an unauthorised overdraft rather than considering a payday loan and it is worth comparing the two so that you can see which will be the best for you.

What is an unauthorised overdraft?

An overdraft is when you are allowed to borrow money form your current account. It means that when you have this account and spend more money than is in there, you will be overdrawn. Many people are offered an overdraft facility with their current account which will have a limit, perhaps at £1000. They will then be able to borrow money up to that amount and pay agreed charges for that. It might be that you pay interest on it and a monthly charge, for example. The amounts and types of charges will vary. If you have an unauthorised overdraft it means that borrow more than you have been allowed. This might be that you go over that credit limit of £1000 or that you do not get an offer of an overdraft at all. An unauthorised overdraft is very much more expensive than an authorised overdraft. How much you get charged specifically will depend on the lender. However, you will find that it will be a lot more expensive than an arranged or authorised overdraft. The actual cost will depend on how quickly you manage to repay it, how much you borrow and how much your bank charges. The overdraft will be repaid as money is credited into your bank account.

What is a payday loan?

A payday loan is a way to borrow anything from a few hundred to a thousand pounds. It does not require a credit check and can be organised in a few hours and so is ideal for anyone who needs money in a hurry. As there is no credit check it can be a good option for anyone with a poor credit record that may not be able to get another loan. The loans have to be repaid within a few weeks and so they will not last very long. You do have to normally repay it all at once, so finding the money can be tricky. This is why the repayment date is always your payday. It means that you will have money available to pay it. However, you then have to manage for the rest of the month with a lot less money which can make it tricky to afford. A payday loan tends to have the reputation of being expensive as well. If you repay it when needed then it will be cheaper than if you miss the repayment or do not make a full repayment when the costs will start rising.

Which is better?

It can be quite tricky to work out which is better and even comparing costs can be tricky. The cost of a payday loan is straightforward to calculate as long as you are sure that you will repay it on time. However, if you do not repay it on time there will be additional charges and how much these are will depend on whether you repay some of it and how long you leave the rest unpaid. The overdraft is equally difficult to calculate as it will depend on how long it takes you to repay the debt and whether you repay it all at once or bit by bit. An overdraft can be dearer than a payday loan but if you compare loans/overdrafts and borrow from one of the cheaper lenders then this may not be the case. Repayment may be an easier factor to consider. With a payday loan you will be expected to repay it in one go and that can be difficult to manage. However, with an overdraft you will repay it as money goes into your bank account. You may find that easier as there is no pressure to repay it but as you get money it will automatically repay it so you do not have to think about it.

You may also find other factors could help you to decide which to use. You might need more money than you can get from a payday loan as they will determine how much they lend you on whether you have had a loan before and your income. You might like the look of some lenders over others. It might be quicker to use one sort of loan over another, depending on what is available to you. You may have heard bad things about one sort of borrowing and that might put you off. There could be all sorts of influences which you need to consider.

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