Convenient lending with credit cards and overdrafts
Overdrafts are designed for short term borrowing, often used in an emergency to help until pay day. Credit card borrowing provides the facility of being able to pay for things instantly (up to your card limit) and then pay it off as you can afford to subject to the minimum payment required each month.
But convenience costs.
Credit cards and overdrafts generally come with higher standard interest rates and fees than a traditional loan (although often credits cards start with a low rate and then increase to a higher rate once the promotional period has finished). Store cards (Halifax do not offer store cards) generally have an even higher interest rate.
Credit cards though generally offer an interest free period on purchases – if you repay the total amount you have spent within that period any purchases you make will not incur interest. However if you are thinking of buying a more expensive item that will take you longer to pay off it will be worth comparing interest rates between your credit card and a loan as a loan may be cheaper.
Overdrafts
An overdraft is a type of borrowing facility. It lets you borrow money through your current account in the short term to tide you over. Think of it as a back-up pot to dip into until pay day. As long as you’re careful, using your overdraft facility can be a perfectly reasonable way to manage your money.
Arranged overdraft
An overdraft you have agreed in advance with your bank. With an arranged overdraft your bank will agree to an amount you can borrow - this is your arranged overdraft limit.
Daily arranged overdraft interest
The interest you will be charged at the end of each day you use your arranged overdraft.
Credit cards
A credit card allows you to borrow money – up to a preset limit and at a variable APR.
Unlike a loan, you don’t usually borrow the money as a lump sum, but bit by bit as you use it to buy things.
Credit cards require you to pay back a minimum amount, or the full balance if it's below the minimum amount.
However at any time you can pay off the full amount, or you can arrange to pay a fixed amount every month that suits you. Remember the quicker you pay your credit card balance back, the less interest you will be charged.
If you keep building up the amount of money you owe on a credit card, but are only paying the minimum amount each month it will take you longer and longer, and cost you more and more in interest.
Always pay off as much of a credit card as you can.
Store cards (Halifax do not offer store cards)
Store cards are similar to credit cards but they are issued by stores for use solely in their shops. They attract customers by offering special deals, but they tend to charge very high interest rates.
They also allow you to pay off a minimum amount each month so that the special savings you make when you buy something are more than wiped out by the interest costs.
However at any time you can pay off the full amount, or you can arrange to pay a fixed amount every month that suits you. Remember the quicker you pay your store card balance back, the less interest you will be charged.
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