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What are Interest Free Overdrafts?

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Looking for access to some form of credit and not sure which route to take? It can be quite stressful working out the right choice for your specific needs, whether you should choose a payday loan, a large loan to consolidate your debts, a credit card, or maybe you should take heed and apply for that interest free overdraft that is currently being promoted by your bank. Most banks and building societies generally offer overdrafts, but if you are not careful they can be very expensive over a long period of time. It is important that you check the fine print and detail of any overdraft that you agree to.

Many people find that they can be accepted for an interest free overdraft much easier and quicker than when applying for a credit card or other form of credit, especially if they are applying for a loan or credit card through their bank. Make sure that you understand what your credit score is like before applying though, as it can be harder to be successful with an application as with other forms of credit, though applying for an overdraft does not rely on credit scores as much as a credit card or loan application does.

Always be aware that there is likely to be a promotional offer with your interest free overdraft. Although it might not mean much to know what the interest and fees will be for the overdraft right now, it is important to look at and understand these numbers, as when the promotional period runs out you’ll be expected to pay the interest fees every month. This can be an exorbitant cost for many people, ranging from 50p per day, up to £50 per month, depending on the type of account, overdraft, bank, and the amount overdrawn that you are.

As with any other form of credit, the amount of time the interest free period lasts will depend on your specific circumstances as the applicant. It could be that you have an interest free overdraft for 6-months, but in the vast majority of cases it is more likely to be around the 12-month mark. This is a shorter period of time than credit cards and means you must be able to pay back the debt at a faster pace.

It could be that an interest free overdraft is an attractive proposition that suits your current financial situation and employment down to the ground. It gives you wiggle room for the time being and allows you to have that breathing space during tough cashflow and restrictive financial times. However, always be aware that there are multiple options out there in terms of credit, from larger loans, to short-term payday loans that can help you out. The interest and fees attached to overdrafts once the interest free, promotional period has ended can be quite extortionate, and in many cases more expensive than the interest and fees attached to a short-term payday loan. With the right, reputable and responsible lender, a payday loan could be the better option than taking out an interest free overdraft. Always conduct thorough research and be sure that your choice of credit fits your specific needs and on-going budgets.

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