With a bank overdraft you can spend more than the amount in your cheque account. In exchange for this service, you’ll pay back the bank interest on the amount by which you overdraw your account.
The bank will borrow you a certain amount depending on your creditworthiness and financial standing.
Credit cards offer convenient lines of credit as well as rewards. By using a credit card you get to spend money even if you don’t have immediate access to cash.
Here’s what you need to consider when choosing between a credit card or overdraft:
With a credit card you won’t be charged interest if you borrow money and pay the amount off by the end of the month. Credit cards are relatively easy to apply for.
When you get an overdraft you can easily avoid charges in your bank account. It’s also often the most cost-effective way to borrow money over a period of several months. It’s important to treat your overdraft as a personal loan and to make sure that you repay it as quickly as possible.
Another benefit offered by an overdraft is that interest rates may be better than those offered by your credit card provider. Overdrafts will charge consistent rates throughout. Credit card interest rates can vary significantly depending on the type of card you have as well as your credit score.
Credit card providers also charge you an annual fee, whereas with an overdraft, charges apply if your overdraft is above a certain limit.
Making a choice between a credit card or overdraft is something you should do by comparing the benefits and disadvantages of both. You should also make sure that you assess your finances thoroughly to see if you will be able to afford to make repayments.