What You Need to Know About an Overdraft Loan

Did you know that the average American has under $9,000 in their bank account?

This may sound like a decent bit of padding but all it takes is one hospital bill to empty that account and bring it into the red. The good news is that there are options you can take advantage of even if your bank account is low on funds. Opting for an overdraft loan is one possibility you could consider.

Are you wondering what it involves and if it’s worth the commitment? Keep reading to learn all about what you need to know when it comes to an overdraft loan.

What Is an Overdraft Loan?

Have you ever tried to withdraw money from your bank account only to realize that you don’t have the funds you thought you need? For some, this can end up being a minor convenience. For others, it can mean the difference between food on the table and nothing at all.

An overdraft loan occurs when you take out money from your account even though you don’t have enough to cover the amount you need. Not only will you have to pay the loan off in the near future but you’ll also be charged an overdraft fee. Depending on who you bank with, the fee could be as little as $5 or as much as $35.

Keep in mind that the fee is applied to each overdraft. The fees can start adding up to a significant amount of your overdraft, say, several times each month. If you know you need to make urgent transactions but don’t have enough in your account, then it’s best to take it out in one fell swoop so that you don’t have to pay multiple overdraft fees.

Some banks offer overdraft protection. This means you won’t get charged an insufficient funds fee but there’s still the matter of paying the loan bank, as well as the interest. Since the interest on these types of loans tends to be lower than the rates associated with credit cards, this is often the better option for people who are in an emergency situation.

Not every single bank account is equipped with an overdraft loan feature. This is something you can only get by signing up with an overdraft facility.

Opening an Overdraft Loan Account

One of the major benefits of a bank account overdraft feature is that it makes bounced checks a thing of the past. Even if you’re making a digital purchase, the bank will honor it on your behalf.

To ensure you have access to this convenient option, you should talk with your bank about it at one of their locations. It’s sometimes possible to sign up for one using the bank’s official website. After you apply, you can expect the bank to run a series of background checks before they approve it.

One thing you should be wary of is writing out checks that exceed your limit and assuming that this will always result in an overdraft loan. Depending on your bank’s rules and procedures, you may need to give them a warning ahead of time before attempting to get the loan. The last thing you’d want is for a check to bounce and leave you with one or more dishonor charges on top of everything else.

When applying for a loan like this, you should also make note of crucial details. For instance, you won’t want to forget about the interest involved. This will be the major factor in deciding if it’s worth it at all.

Interest can sometimes be around 15% to 20% but the rates vary too much to put an exact number on them. Other than the interest, be sure to ask your bank about service or convenience fees. Some fees will charge you every day while others can charge you by the week or the month.

Downsides of Overdraft Loans

Before you begin a transaction or withdrawal that exceeds the funds in your bank account, you should be aware of the disadvantages that come with this option. While the interest rates tend to be lower than those associated with a credit card, for instance, the rates are still higher than other loan types. A personal loan is a quick and easy option that often has better rates.

Since you’re at the mercy of the bank, you shouldn’t get too surprised if you find out that the due date of your repayment is pushed forward. The interest can change on a whim as well. It’s not uncommon for interest on a person’s overdraft loan to fluctuate on a day-to-day basis.

As if that wasn’t enough to deal with, the bank also has the ability to change your borrowing limit at any time.

The limit you’re given is often dictated by the average amount of money you’ve had in your account. This is yet another downside of an overdraft loan because it may prevent you from getting the amount you need. In general, overdraft loans are not a great option for people who need larger loans.

To have peace of mind about your decision, it’s worth looking up what past customers at the bank have said about their customer service and the fairness of their practices.

Are You Ready to Get an Overdraft Loan?

Now that you’ve learned all about what an overdraft loan is, you can decide if it’s worth the commitment or not. Sometimes it’s better to go with another type of loan, such as a personal one.

Fast Loan Direct has your loan needs covered. We can provide you with fast cash ranging from $500 to as much as $5,000. That way, you can feed your family, fix your air-conditioner, or do anything else that needs to get done by a certain deadline.

Feel free to apply here. Don’t hesitate to reach out if you have any questions as well.