Overdraft Vs. Credit Card

Overdraft or credit card: Which is better when borrowing money?

When it comes to borrowing money what’s better? We take a look at the overdraft vs. a credit card. 


Sometimes emergency expenses crop up. Sometimes we need to stretch our money a little further. Moving costs, holiday fees and additional wedding expenses can all creep up. It’s inevitable that you’ll have to borrow at some stage in life.


But what is the best way to borrow money? Should you rely on an overdraft or put it on the credit card?


There’s no straight-forward answer. Not everyone has access to both options and there’s a number of personal factors to consider before you can make a choice. 


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How Does An Overdraft Work?


An overdraft is an extension of your bank balance, agreed upon by your bank. But this extension is essentially a loaned amount. 


It means that if you have no funds in your account, your bank will allow you to go over your account to a set limit. This means you’ll be able to withdraw funds or cover outgoing bills, even if you have no money in your account. 


Like all forms of credit, you will pay for the use of the overdraft either with a set interest rate or daily fees (although this is set to change with the new FCA rules).                                                                                              


How Does A Credit Card Work?


A credit card is a separate from your bank account, offering you an advanced amount of money that you can pay back either in full or month by month. 


If you cannot repay the amount of credit borrowed in one, you carry that balance onto the next month and will be charged interest on that balance. 


Often the minimum required repayments are not enough to match the interest added, which causes the customer to get stuck in a cycle of persistent debt. 


Should You Use An Overdraft Or A Credit Card?

There are several factors that come into play when determining whether to use an overdraft or credit card when borrowing money. 


  • Do you have access to both lines of credit?
  • Will the credit card or overdraft balance cover the costs? 
  • Do you already rely on one of both of these forms of credit?
  • Which is the cheapest option in terms of interest rate over time?


It’s important to consider the cost of borrowing money - especially if you expect to pay the debt back over a large amount of time. 


If you cannot factor in chipping into your monthly budget to reduce your overdraft or think you’ll get stuck in a cycle with minimum credit card repayments, then what is the alternative?

What Is The Cheapest Way To Borrow Money?

In April 2020, the Financial Conduct Authority has asked all banks to set one consistent interest rate and remove all additional fees. Most of the banks have already announced that they will set the interest at a staggering 39.9%.


In 2019, the average credit card interest rate hit a 13 year high, climbing up to 24.7%. 


With endlessly increasing interest rates, what is this cheapest way to borrow money and cover your expenses?


At Leap, we offer loans from £500 - £15,000 starting at 3% interest which you can pay back over 1 to 5 years. Although the interest is subject to the terms set, a personal loan from Leap could be the cheapest option when it comes to borrowing money. 


Use our interest calculator to see how much interest you could save when you take out a loan with Leap. It could be the best option for covering your expenses and should be the cheapest. 


Get your personalised quote today. 






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