An overdraft can be a costly debt to carry, so if you are in a position where you could begin to pay off your overdraft, aim to get this under control ASAP. Sometimes, you may be able to repay an overdraft debt faster, particularly if it is large, has accrued lots of interest, and has been charged to you by your bank, by taking out a low-interest personal loan.
For example, if a normal house loan is available with an interest rate of 6.8 percent per year, the one that has an overdraft facility could cost you 7.2 percent per year. Any increase in your outstanding home loan balance can later raise your interest rate. As with any loan, borrowers pay interest on the outstanding balance of an overdraft loan.
A home loan overdraft is similar to an overdraft limit in a checking or savings account, in which a borrower may put up a down payment or additional funds. With an overdraft account, a bank covers payments the customer has made which would have otherwise been declined, or, in the case of an actual physical check, would have bounced and been returned with no payments. An unscheduled overdraft is one in which such facilities are not agreed upon beforehand. The overdraft option usually makes sense for someone with a guarantee of saving additional cash beyond their normal EMI. You can also connect a credit line or a credit card to cover overdrafts. If you cannot afford to repay an overdraft in a single lump sum, or even small installments, due to the overdraft fees that are charged on an ongoing basis, then a cash-transfer a credit card might be a good idea.
By moving your overdraft onto a credit card with zero percent transfers, you can more easily get out of debt. You have a little more flexibility when repaying your overdraft because you usually can decide whether to split payments into multiple payments or repay the total amount as one lump sum. When you are paying back a personal loan, you can set weekly or monthly payments, or you can choose to pay the amount in one lump sum. With a short-term loan option, you may generally be eligible for anything between $100 and several thousand dollars. With loan payment extensions, you can make your loan current by moving one or more of the monthly payments forward until later in your loan. It may seem a smart idea, but sticking with a tight budget every month, which allows you to budget for paying down debt in manageable chunks, can help you get out of debt fast.
As of April 2020, banks must apply one uniform rate (APR) across all overdraft facilities, replacing the old system of confusing daily or monthly fees. Typically, these accounts would charge both a lump sum funding fee, as well as interest on the outstanding balance. Overdraft protection typically comes with significant fees and interest that, if not paid off on a timely basis, may place additional burdens on account holders.