There are lots of different type of loans that we can take out and it is a good idea to compare them so that we can be sure that we are taking out the best loan for us. Some loans are more similar than others so it will be more relevant to compare them. For example, overdraft and credit cards have similarities as well as differences. It is a good idea to compare them to make sure that when you are borrowing, that you choose the right one that will suit your needs.
Speed of Borrowing
If you already have a credit card and an arranged overdraft then they will both be very convenient for you to use. They will be there for you to use when you need them. This means that it will be very quick for you to get the money. However, if you do not already have them, then you will have to arrange them. It may not take that long, but it depends on the lender that you approach. If you already have a current account with a bank that offers overdrafts then you may just have to phone them to ask if you can have one. They already have all of your details etc so it should be easy to set up. With a credit card, it will depend on who you go with as it may be the case that you will need to provide them with ID so that they can check you out and do a credit check before issuing a card. If you use the bank you are with, assuming they provide credit cards, this could speed up the process. However, with both of these types of borrowing, it is wise to compare the different lenders and options that you have as it could make a big difference to the cost.
The cost of credit cards and overdrafts will vary depending on who you choose to borrow money through. Generally, the cost of an overdraft will be between 35% and 40% although you may be able to get it cheaper if you pay for a current account, but you will then have to calculate whether it is worth paying that money. The interest rate is an annual rate but you will be charged every day that you are overdrawn. With the credit card you will also have an interest rate and this will vary greatly. The interest will not have to be paid immediately as you will get a statement each month and you will have a certain amount of time to pay it, which means you borrow for free for a while. You can then repay everything you have borrowed and still not pay anything. However, you can also just repay a minimum amount which will cover the interest and just a tiny bit of the repayment. If you repay this way then you could be borrowing for a long time and the cost will really add up. So, how much you pay is very variable.
The way you repay differs in that the overdraft will be automatically repaid as you earn money and it goes into your bank account. However, the credit card will be repaid monthly and you will be able to choose whether to repay the full balance at no cost or repay a minimum amount and pay interest on it or an amount in between the two.
So, whether one is better than the other will depend on what appeals to you, which you feel with give you better value for money and how you want to use them.