Did the money run out before the end of the month? You have bills to pay and the salary did not give? It is at these times that many are in doubt and worried. After all, is it better to opt for a personal loan or overdraft? Which one pays more?
To decide which option is best for you, you need to know more about both types of credit. Moreover, one must always think about the interest rates that each one has.
Read on and find out everything you need so you can decide between personal loan or overdraft.
What is overdraft
Overdraft is a form of credit offered by banks to their account holders, but it is not a mandatory service.
Those with credit restriction issues (dirty name) may be denied overdraft requests. The money available on the account (overdraft limit) can be used for any purpose, such as bill payments, transfers and withdrawals. To see the overdraft limit, simply print the bank statement.
The total account balance includes the overdraft limit, which may cause the false feeling of having more money. That way, every time you spend more than you have cash on your checking account, the overdraft limit is used to cover your account, but each time you do, you pay interest. If you use your overdraft frequently, it can hurt your financial situation.
In general, when there are questions about personal loan or overdraft and the person evaluates the interest, they find that the overdraft charges are much higher.
How Overdraft Works
Every credit operation has an interest rate, and with the overdraft would be no different. So that customers can use the service more often, some banks offer overdraft interest free for 10 days, while others simply use the overdraft overnight to have to pay interest.
Moreover, what some customers do not know is that if you exceed the stipulated deadline, you will have to pay retroactive interest, ie from the first day of use of the limit. Let’s say you decided to use the zero-rate overdraft for 10 days, believing that by the tenth day you would have money to cover. However, the amount that should be deposited to your account is one day late and you need to use the overdraft for 11 days. When this happens, the interest rate is calculated for the 11 days and not just for the day you overused.
As the interest rate is high, as soon as the money falls into the account, you will have to pay it back, meaning what was benefit ends up being spent. Therefore, the ideal is to escape the overdraft and opt for a cheaper and unsurprising line of credit, such as a personal loan.
If you use overdraft often, count on Good Pra Credit to rearrange your finances!
What is a personal loan?
When a person needs extra money and seeks a financial institution to borrow the amount, what we call a personal loan is realized.
In order to make the loan, the institution generally evaluates the applicant’s financial history and whether he is able to repay the loan installments. If the institution finds that the installments may hurt the applicant’s monthly income, a new loan offer with a lower amount is usually made.
Before deciding to take out a loan, it is advisable to compare the interest rates and conditions offered to see which one best fits what the person needs.
One of the advantages of the personal loan is that it can be used for any purpose, ie the bank will not evaluate the reason for the request as it does in the financing. Thus, you can make a personal loan in cases such as:
- When you have unbalanced and overdue bills. In this case, the personal loan can be used to pay off the debts and then you repay the loan in small installments that fit your budget;
- Travel: If you want to travel and have not saved money, a good alternative is to opt for a personal loan. Then it will pay everything gradually;
- Renovation: Does Your Home Need Renovation? Some things cannot be delayed, such as a problem with the roof or the power grid, for example. When this happens, a good option is to take out a personal loan so you can reform everything and pay off gradually;
- Health issues: No one can predict when they will fall ill or need more expensive treatment. If this happens to you or someone in your family, a personal loan may be the best way to repay what you need in sight and then gradually repay the loan installments;
- Party: Whether it’s celebrating the anniversary or the wedding, having a party is expensive. That way, if you haven’t programmed yourself, you probably won’t be able to pay everything in cash. A good alternative is to use your personal loan to make your dream celebration come true and pay your costs gradually, according to your budget.
As you might notice, the loan is an alternative to various stages of life and can help you both realize a dream and organize your financial life.
How the loan works
Before releasing the requested money, the finance company makes an assessment of the client’s financial situation.
All this is evaluated by the system. Then, if the lender understands that the client is able to borrow the amount requested, she makes a proposal.
In it, there are the installment conditions, as well as the interest rates charged and the final loan amount. If the person accepts, he signs the contract and has the amount released in his bank account.
After that, on the agreed date, the person must pay the installments until the loan is finalized. Before hiring a personal loan it is important to make sure that the installments fit your home budget. Stay tuned!
Is overdraft loan?
The overdraft works as a pre-approved loan that the bank leaves in your account and you can use it in any emergency. The amount of the overdraft varies according to the customer, his monthly income, if his name is clean, among others.
Since the amount is available in your account and you can use it at any time without the bank doing an analysis of your current financial situation, the risks of the customer not paying are greater. Therefore, this type of pre-approved loan has higher interest rates than the personal loan.
Personal Loan or Overdraft
I need urgent money: do I use my personal loan or overdraft? This is a common question of those who need fast credit but don’t want to pay dearly for it. As it is approved in advance and is available in the checking account for use at any time, the use of overdraft deserves attention.
Many people end up using this amount as part of their income. The problem is that in addition to not being part of the salary, the person begins to pay interest. When overdraft happens sporadically, it’s even easier to balance the situation. However, when usage is monthly, debt can become a real problem and compromise the entire budget.
There are people who go so far as to receive the salary and have to use it to pay the amount of the overdraft too, leaving no money in the bank account. If this happens, the person ends up using the overdraft again. After all, you need to pay the bills of the month and so on, getting more and more indebted. What to do in these cases? One tip is to ask the bank to reduce the amount of the overdraft or even withdraw it from the account to avoid getting you back into debt.
Another tip is to make a personal loan. To do this, start by adding everything you owe, including your overdraft expense. Put everything in your account: from rent, to an overdue bill that needs to be paid. Once this is done, you will know what amount you need to apply for in a personal loan.
Overdraft interest vs. personal loan interest
Overdraft interest is one of the highest in the financial market, second only to credit card interest.
According to a survey on interest rates conducted by the Center for Intelligence and Research of the Paulista School of Consumer Protection Foundation Procon-SP, the average rate of banks surveyed was 6.19% per month.
The percentage of overdraft interest varies among financial institutions and can be up to almost 15% per month (435% per year).
How to get out of overdraft
In order to stop using overdraft, better financial planning is required. Gather your bills, what you spend each month, how much you get, and see how you can cut spending.
All that done, add up your debts and see what the total amount is. If you notice that by reducing expenses you will be able to stop using overdraft, great, just do it and control yourself in the future.
However, if you notice that the amount due on the account is too high and that the spending cut is not enough to cover the overdraft, the tip is to make a personal loan.
Interest rates are lower and you can use the amount to reorganize, but keep in mind that you’ll need to ensure that you can pay the monthly installments.
Another way to get out of overdraft is by getting an extra income. To do this, you can find alternative work for your off hours and use the amount you receive to pay off your debts.
How to calculate overdraft interest
Interest on overdraft has varying rates, according to the financial institution. You can access it from the bank’s website or direct from the Best Bank.
Customers are charged monthly. If you want to know how much interest is charged per day, just divide the monthly interest rate by the number of days. Let’s assume the interest rate is 15% per month and the month is 30 days. 30/15 = 0.5% per day of interest.
How To Calculate Personal Loan Interest
The most practical way to make this account is by using an online Best Bank calculator (click here). Just inform:
- No. of months;
- Monthly interest rate (if any);
- Amount of the installment (the first installment is not considered to be in the act);
- Financed amount (the financed amount does not include the amount of the down payment).
After that, click on “calculate” and you will have the data you need. Now that you have decided between personal loan or overdraft, it is time to compare interest and increase alternatives. Do it on Good For Credit!