Overdraft versus Social Lending
If you are thinking of using your bank overdraft or perhaps extending it, then it is a good idea to look at cheaper alternatives first. An overdraft can be a very expensive way to borrow money, especially if it is an unauthorised one and so there are many cheaper option.
One of these options is social lending. This tends to have a competitive interest rate and could be a lot better than using your overdraft. It will also have a repayment plan, so you can return the money over a time period, whereas overdrafts will keep being charged for until it is paid off, even if that takes forever.
An unauthorised overdraft is the worst one to have. This is where you borrow more money than you are actually allowed to have. The bank will penalise you harshly for this. They will not only charge you a one off fee but also a very high amount of interest for each day that you are overdrawn. Even if you do not have an unauthorised overdraft, it could still be costly for you. The interest rate could be quite high.
It is worth doing some calculations to find out how much you will end up paying. Compare this to social lending and you may find that it works out better. You will have to try to work out how much you would pay back each month with the overdraft, as you will not have a structured repayment plan. This may make you tempted to keep the loan for longer and it could end up costing you a lot more money. It is wise to do some calculations assuming you pay off the overdraft as quickly as you possibly could, you take a bit longer or you take twice as long. This will help you to decide which of the two are the best for you.