How do Overdrafts Compare with Other Loans?

A lot of us will have an overdraft facility alongside our current account. So, if we use too much money on our current account, perhaps by overspending or having an unexpected bill, then the money will be available for us to use to cover that cost. They work a bit differently to other loans though and it is a good idea to find out what the differences are so that you have a good understanding of them and know whether they are right for you to use.


Many loans will have a specific repayment schedule and you will be expected to repay a certain amount each month. This means that you will know exactly how much you will be expected to pay and when and you will have to pay it. With an overdraft there is no repayment schedule. This means that it is up to you when it is repaid. Any money that goes into the current account will automatically repay it though. This means that you do not have to remember when to repay it but if you are paid, you might expect to be able to be able to spend the money when it might be used towards paying off the overdraft instead. So the method of repayment has pro and cons and you will have to figure out whether you feel that it is something that will work out for you.


An overdraft cost will vary depending on who the lender is. However, you will tend to find that it will be between 35% and 40%. This is cheaper than some loans, but more expensive than others. This means that you need to think about that cost and whether there is an option that you can take that will be cheaper but that will still suit your needs. It can also be wise to compare the different places that offer overdrafts and see which seems to be the cheapest so that you can perhaps switch to a bank that offers one that will be cheaper for you.

Length of Loan

With an overdraft the loan will normally be available for you to use at any time. There will also be no need to pay it off by a certain date. This flexibility can be really useful and many people like it as it means that they can use the overdraft as a backup for emergencies and it can give them peace of mind. However, there are some disadvantages as well. If the money is always available for you then you could be tempted to use it for all sorts of things. For example, you might feel that you want to use it to treat yourself occasionally and this could be an expensive way to do so. You may not have considered that treat had the money not been available to you. You could choose not to pay off the loan for a while as well, because you do not have to and that would end up costing you more money, so you need to be careful about that as well.

So, you will need to think about whether this loan will be useful to you or not. There will be other loans that you might be able to consider as well and you will need to compare them so that you can make sure that you pick the loan that is best suited to your needs. Your needs may change as well, depending on your situation and so it is good to bear this in mind – so if you know about the overdrafts then you will easily be able to decide whether they will be a good option for you.


I really like doing research on different topics and this means that working as a writer is a great job for me. I get to write about all sorts of topics and researching them is a lot of fun for me. I also have got very good at being able to tell the difference between correct and incorrect information, although many sources are written in a very convincing way. I like to look for evidence and proof before I form my opinion. I hope that when I am writing, I am putting across up to date information that is correct, as a result of my research background.

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