When we are in need of money, whether to buy something or even to pay off debts, it is almost an impulse to resort to less bureaucratic credit alternatives, such as overdrafts.
This does not happen by chance: the overdraft is very practical and easy to use – when your account goes red, you are automatically using it. But is that really the best solution to get the money you need?
Another less used alternative is payday loan, and that’s what we’ll talk about today. Below, we’ll explain to you how these two credit offers work, so you know how to decide which one is best for your pocket!
How does the overdraft work?
Overdraft is a service offered by financial institutions and attached to your account. At the time of opening, a profiling is usually done to determine the amount that will be made available on your overdraft. The greater your financial credibility, the greater the value.
This amount is already made available in addition to your account balance. This is a strategy for banks to see your overdraft as “guaranteed money” and end up using that credit service.
That is why it is important to be careful when looking at your balance. The actual cash value you have will be recorded first and then the amount of the overdraft. Some points to consider before using the overdraft are:
- There is no payment date, unlike a loan. However, the longer you use the overdraft amount, the more interest you will pay;
- Some accounts offer a few days of interest-free check, so check to see if yours does not fit this type;
- Overdraft interest is usually charged every first business day of the month, and if you do not have money in your account, you may be charged a 2% fine on the debt.
How does payday loan work?
payday loan is a service offered by banks, financial institutions or banking correspondents. With it, it is possible to get an amount for various payments depending on your credit rating. This modality has gained strength, especially among those who need small loans to pay off debts or buy some more valuable goods.
Currently you can make the loan online without even leaving home. The process is very convenient and less bureaucratic than with banks. Some points to consider before applying for a payday loan are:
- The loan application process with banks is usually quite bureaucratic, whereas through the internet the process is faster and the requester has the answer in a few minutes and if approved, receives the amount in a few hours;
- The online payday loan is quite secure, as long as you research the loan provider company well before making the contract;
- For the payday loan online, it is possible to get smaller amounts, for punctual payments, ideal for those who do not want to commit to a new long debt.
But then which of the two is better?
And the answer is: it depends. For those who have a few days of interest-free paychecks, this may be a good option to reimburse some payments. However, because there is no set control or due date, overdraft can end up becoming a snowball, which will make you pay more than if you were looking for other credit options.
The interest rate on the payday loan varies greatly according to the financial, since each company has rules, approval rate, credit analysis etc. However, this can be a good option, especially when you need small amounts to pay off debts or punctual purchases. The tip is to research hard and choose a suitable financial and that offers you good conditions for payment.