Unauthorised Overdrafts V Payday Loans
When it comes to short term finance that you can get quickly, you have two main options. Either payday loans or an unauthorised overdraft. But which one is the better option? That's what this article is going to be exploring.
How Payday Loans Work
As long as you are able to pay for a pay day loan out of your following month's salary then you should be approved for the loan. The application can all be made online and there is no need to even speak to anyone. There are no credit checks, or questions about what you intend to do with the money. The money usually comes through on the same day as well.
You then have to pay the money back when you are next paid. That is the principal amount that you borrowed as well as the interest that you are charged. So this is one way to get money quickly in order to deal with financial emergencies.
Unauthorised Overdrafts: How They Work
It's not entirely accurate to say that "unauthorised" overdrafts are actually unauthorised. After all, the bank could simply refuse to pay anything out once you go past what you have available. Really then the difference is whether it is something that has been arranged beforehand or not.
The advantage to the bank of having people take money out with an unauthorised overdraft is that really they can charge whatever they feel like as they haven't given authorisation for it. This means that you usually get charged every day that you are in overdraft.
Which is Fastest?
In a financial emergency in which you need short term finance, the speed with which you can get the money is often going to be very important. So we'll look at that first. And the pay day loan comes out well here of course, as you can usually have the money within the day once you have made the application online.
Really though, there is nothing that is going to be able to beat the unauthorised overdraft in terms of speed. After all there is absolutely no delay, the money is effectively in your account the whole time. So if you can't even wait a few hours, or even minutes in some cases, then you might have to use the overdraft.
Interest Rates and Charges
As there isn't much difference in terms of speed between payday loans and overdrafts then, the biggest concern is going to be the expense that is associated with each sort of loan. Here you will find big differences.
It is in the realm of cost that lots of people think that pay day loans become unreasonable. After all, how could something with an APR as large as they have got, be the cheapest option? However it's not really fair to judge them on the APR as that assumes you'll take 12 months to pay back the loan and is only supposed to take you 1 month.
While the APR is not a fair way to judge a short term loan on its own, it can be used as a useful comparison between two loans of the same type. So that's what we're going to do now with overdrafts and payday finance.
The APR on unauthorised overdrafts does not have to be displayed because it is not technically a loan. However it has been calculated, and for one bank it was found to be 46,000,000%. That's 46 million. In comparison, pay day loans only have an APR of something over 1000%. Here then, the payday loan clearly wins.
With that said though, as long as you pay off the overdraft within a day or two, you will probably find that to be the cheaper option. After all the pay day loan has to last for a month, so you will have to pay a fixed amount based on that. Unless you only need an extremely short term loan though, the payday option is going to be preferable.
How Payday Loans Work
As long as you are able to pay for a pay day loan out of your following month's salary then you should be approved for the loan. The application can all be made online and there is no need to even speak to anyone. There are no credit checks, or questions about what you intend to do with the money. The money usually comes through on the same day as well.
You then have to pay the money back when you are next paid. That is the principal amount that you borrowed as well as the interest that you are charged. So this is one way to get money quickly in order to deal with financial emergencies.
Unauthorised Overdrafts: How They Work
It's not entirely accurate to say that "unauthorised" overdrafts are actually unauthorised. After all, the bank could simply refuse to pay anything out once you go past what you have available. Really then the difference is whether it is something that has been arranged beforehand or not.
The advantage to the bank of having people take money out with an unauthorised overdraft is that really they can charge whatever they feel like as they haven't given authorisation for it. This means that you usually get charged every day that you are in overdraft.
Which is Fastest?
In a financial emergency in which you need short term finance, the speed with which you can get the money is often going to be very important. So we'll look at that first. And the pay day loan comes out well here of course, as you can usually have the money within the day once you have made the application online.
Really though, there is nothing that is going to be able to beat the unauthorised overdraft in terms of speed. After all there is absolutely no delay, the money is effectively in your account the whole time. So if you can't even wait a few hours, or even minutes in some cases, then you might have to use the overdraft.
Interest Rates and Charges
As there isn't much difference in terms of speed between payday loans and overdrafts then, the biggest concern is going to be the expense that is associated with each sort of loan. Here you will find big differences.
It is in the realm of cost that lots of people think that pay day loans become unreasonable. After all, how could something with an APR as large as they have got, be the cheapest option? However it's not really fair to judge them on the APR as that assumes you'll take 12 months to pay back the loan and is only supposed to take you 1 month.
While the APR is not a fair way to judge a short term loan on its own, it can be used as a useful comparison between two loans of the same type. So that's what we're going to do now with overdrafts and payday finance.
The APR on unauthorised overdrafts does not have to be displayed because it is not technically a loan. However it has been calculated, and for one bank it was found to be 46,000,000%. That's 46 million. In comparison, pay day loans only have an APR of something over 1000%. Here then, the payday loan clearly wins.
With that said though, as long as you pay off the overdraft within a day or two, you will probably find that to be the cheaper option. After all the pay day loan has to last for a month, so you will have to pay a fixed amount based on that. Unless you only need an extremely short term loan though, the payday option is going to be preferable.
About the Author:
Should you be in need of payday finance or you would just like to find out more about it, visit Payday Loans where author Jackson Clark enjoys writing frequently.