Overdraft, Loan Or Credit Card?
It seems that everywhere we turn at the moment we are being subjected to some kind of financial promotion, whether a credit card application through the post, loan advertising on the television or the banks trying to “give away†an overdraft facility. Sometimes it can all become a little complicated, and it can be difficult to think which form of credit best suits each financial situation.
When considering either an Overdraft, Loan or Credit Card you may wish to consider the following :-
Overdrafts
While many banks offer “free†overdrafts, it is essential that you do not exceed your agreed limit. “Free†overdrafts tend to be very small in size, maybe £50, and are often used to tempt you in, and then possibly increase the limit in due course, with charges - thereby increasing the bank’s income.
Overdrafts should really be treat as a short term solution, maybe a buffer against incoming and outgoings and possible timing problems. They should never be treat as a medium or long term financial aid as the interest charges are often very very high and are overdrafts are repayable on demand!
Loans
Of all the financial instruments available, Loans are probably one of the more popular, and often most useful. While the amount of funds loaned from any financial institution should always be within your payment range, they offer a very useful structured approach, allowing payment terms up to say 25 years for mortgages (and less for personal loans).Â
Quite often on shorter loans the terms can be fixed, which allows you the opportunity to budget for the repayments, knowing that they will remain constant. Due to changes in regulations, many banks are now offering the chance to repay funds early, with reduced costs, which can often lessen the financial pressure for some customers. Loans tend to be medium to long term solutions, and offer a more structured approach.
Credit Cards
While credit cards are one of the most popular forms of finance in the UK, they are a real bonus for the financial institutions.  They are very easy to use (often too easy) and are very convenient, with 99% of retail outlets accepting cards. Even though many customers are warned about the high interest charges, and additional costs associated with the cards, unless you are able pay off your balance on time it can be very easy to get into a mess.
For many people credit cards are very useful for special occasions such as birthdays, Christmas and sometimes offer a more accessible form of finance (it is often easier to obtain a credit card than a loan!). Credit cards should only really be viewed as short term financial instruments, as it can be very easy to “spend today and pay tomorrowâ€.Â
Apart from mortgages, where other external factors come into play, credit cards have been the cause of much of the personal debt crisis currently sweeping the UK.
While some types of finance are more accessible to the masses than others, it is vital that you tie up a suitable financial arrangement with your situation. Do not get drawn into short term finance, knowing that you will not be able to repay on time. Review, reconsider and then act - do not rush in.
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