Banks provide us with different options to make our life hassle-free. With the knowledge that people struggle with monetary setbacks every day, financial institutions can curate options and schemes for the customer in line to his/her financial appetite.
Bank overdraft is one such similar feature. This is an option given by banks to current account holders who require liquid cash on an everyday basis. Let’s start by looking at what bank overdrafts are how they help customers who need some quick money.
Bank overdrafts give you an easy and quick way of borrowing money from your respective banks. A bank overdraft gives you the provision to spend more money than you have in your bank account. The limit to which you can use the extra cash is decided jointly between you and your bank.
However, this money comes with a cost, popularly known as the overdraft interest rate. Overdraft is just like any other debt which is subject to the charge of interest at a particular rate.
Overdrawing more than the agreed amount of money comes with additional charges apart from the interest rate. This charge can come in the form of a penalty or high-interest rates. Bank charges are also applicable in case you put cheques through your account which has the overdraft facility.
In the event of non-payment of your overdraft dues, the bank might freeze your account, which would bar you from borrowing any money. You cannot even access the salary deposited in your bank account.
What To Do When You Are Unable To Pay The Overdraft Interest Debt
You can be subject to legal action if you are unable to make payments towards the overdraft interest. The lender might give you a few chances to make the payments. However, any legal action can cost you much more than what you owed the bank in the first place.
People usually don’t know how to get out of debt. Here are some tips in case you are unable to pay back your debt:
- Try getting some financial advice. This will help you out with the ways you can pay off your debt.
- Make a list of all your debts and prioritize what needs to be paid back first.
- Prepare a personal budget to manage your finances.
- Make calculations on how much can you afford to pay each month and then inform or talk to your bank about the same.
Talking And Negotiating With Your Bank
The best way to come out of an ugly debt repayment situation is to be transparent with your bank. You can try explaining your inability to pay back or negotiating with the lender by giving him a clear picture of what went wrong.
Rather than avoiding your bank, talk to them about the reasons as to why you needed the extra money. You can then fix a new timeline for repayments and discuss how are you planning to repay your debt. You could also ask your bank to give you some concessions in terms of interest rates and penalties.
Applying For A Loan To Clear Your Overdraft Interest Debt
Loans are considered to be a cheaper debt source when compared to overdrafts and credit cards. Also, they come with high repayment tenures to ensure that you can make small regular payments towards your loan.
If you meet the eligibility criteria, getting a loan would be the best option to pay back your overheads and overheard interest debt. You can use a loan eligibility checker to know if you are in a position to avail the facility.
With that, one must remember that loans come with an annual percentage rate. These affordable rates are only provided to 51% of the applicants who have a high credit score. While other applicants with less than satisfactory scores might get a loan at a higher annual rate, the price is still lower than the interest rates which come with overdrafts.
Also, a few lenders have a fixed rate for all the loan applicants. If the loan eligibility checker shows a green result, you are most likely to get that particular loan at that interest rate.
Things To Keep In Mind Before Getting A Loan
Before you decide to take a loan to cover your overhead costs, here are a few pointers worth keeping in mind:
The Right Loan
Make sure to choose the right loan. Different loans come with varying interest rates, so always be sure to weigh your options before making a choice.
Paying off the overhead charges with a personal loan can save you in the long run. A personal loan comes with a fixed payment and a fixed end date. This gives a time frame which helps you ascertain when you will be debt-free.
Loans require commitment where you have to make regular monthly payments. You should opt-in for a loan only if you have the financial stability to make these regular payments. In case of any failure in making monthly payments towards your loan, your credit score will be impacted to a great extent.
Additionally, it is crucial to keep up with your interest payments along with the principal repayments.
Make sure to budget your monthly expenses well before taking the loan route. Coordinate with your lender to shift the monthly payments to the end of the working month so that you can manage your finances well.
The most critical step to get out of debt would be to get the overdraft facility removed from your account. This will save you from the temptation of overdrawing again.
Start moving your funds to bill pots to save as much as cash as you can. This will prevent you from spending unnecessarily and making payments towards the loan.
Loans can come handy in case you are debt-laden from a bank overdraft. Effective financial planning can help you get the upper hand in such situations. Make sure to budget your expenses and keep your credit balance stable so that you don’t fall into the expensive overdraft trap again.