An overdraft is something that many people use when they run out of money. They will continue to spend money from their current account, perhaps using a debit card or drawing out cash even though they have nothing there and go overdrawn. Overdrafts can be an expensive way to borrow money though and so it is worth making sure that you have the best one.
How to get an overdraft
An overdraft is something that we will often get offered when we open a current account with a bank or building society. If we have a good enough credit record, they may offer the opportunity to borrow a sum of money whenever we want, if we need it. It can seem like a great way to get a bit of extra money and we do not even have to worry about paying it back as it will be automatically repaid when money gets paid into the account. This certainly makes it convenient but it is not cheap. All loans have costs of course, but an overdraft can be on the pricey side. You also have to agree how much you will borrow up to with the bank or building society. If you borrow more than this they will charge you much higher fees. It is good to know exactly how much you can borrow up to and how much you will pay for this as well as how much extra you will pay if you withdraw more than you have agreed.
You may be able to arrange a larger overdraft with the bank, but you will have to ask them and see if they are prepared to let you have more. They will all vary slightly in the criteria they have for overdrafts and so you will need to ask in order to find out whether they will be happy to offer you a larger one or not.
How to compare overdrafts
Comparing overdrafts is a case of comparing current accounts. You should be able to find out how much the overdraft will cost you with different banks and building societies. You may have to speak to them personally if you want to find out exactly how much money they are likely to let you have as an overdraft. You may even need to check how much they will charge as often the advertised rate will not be the rate they offer to everyone as it can depend on your credit record. However, it can be well worth comparing them, especially if you use your overdraft regularly as a cheaper overdraft could lead to significant savings in the long run.
As well as comparing the overdraft costs, there are other things that you need to be aware of as well when you are comparing current accounts. There are often many more services that a current account provides as well as an overdraft facility and you need to make sure that the one you are considering will provide the same for you. It might be that you pay a fee for your account and get some benefits such as free insurance or other reduced or free items and you need to consider whether this makes up for the dearer overdraft cost or not. It may be that you have a local branch that you like to go into. It could be that you use their online banking and want to make sure you still have this facility. You may also want to consider things like how good their customer service is and their reputation. You may also want to check that you can make cash withdrawals form the same places, you will get a debit card that is accepted in the same places and things like that. Consider all of the features that you use at the moment from your current account and ensure you will be getting those from the new one.
How to change your overdraft
So if you do find an overdraft that is cheaper then you will need to switch your current account across to that provider. This could sound really difficult, but these days it should not be. They should be able to automatically transfer over your direct debits and standing orders so you will not have to worry about doing, although you may want to check that it has been done properly. You will to provide your new bank details to your employers so that your salary goes to the right place and anywhere else that you receive payments form or pay to, that is not set up as a direct debit or standing order. Despite there being a few things to do, it should not actually be that difficult or take that much time and if you can save a significant amount of money then it could be well worth that small effort.