The dangers of overdrafts

All banks will attempt to offer you an overdraft and are very keen to remind you of this possibility, but they have their reasons to do so.

13:58 22 September 2013

The overdraft is a small loan that you can take from the bank where your earnings are stored. They are particularly good if you need a small amount of money just before the payday, but they are very dangerous if you don't repay them in time. The overdraft is actually one of the worst loan deals on the market; with huge fees that apply if you don't manage to repay them in time.

Here are the main dangers of overdrafts and some easy ways to avoid them:

• only apply for an overdraft if you know that you will be able to repay it in a couple of months;

 

• always look for solutions to an overdraft, such as another financial product with low interests;

 

• if you need an overdraft for some monthly payments that you have to make just before the payday, try to postpone those payments and thus avoid the overdraft;

 

• overdrafts are probably the most expensive way for you to borrow;

 

• some banks may not even inform you on their own about your overdraft limit, so you will have to make sure that you have not passed that limit, as even greater costs would be involved in this case;

 

• It may happen that you take on an overdraft for a small payment you have to make, and then just take on more payments with the overdraft money – try to resist this temptation and strive to repay the overdraft as soon as you can.

So it is absolutely vital that you remember that overdrafts should only be used as a very short loan and should be repaid as soon as possible to avoid large costs. Always look for alternatives, even from family members or friends.