There are always going to be times when we need our money to go a little bit further than our paycheck allows. Whether it be emergency home repairs, bills you didn't see coming and of course, the Christmas holiday period.
Getting an overdraft is one hugely popular method of borrowing cash, especially for younger people, many of whom have enjoyed substantial overdrafts from their university days.
However, it is important to remember that an overdraft is by no means 'free money' and that getting the best rate is crucial to ensuring that you do not have the nasty surprise of coming up against some hefty bank charges.
According to comparison experts MoneySuperMarket, it is vital that consumers always shop around in order to find the very best deal on their overdraft.
Analysis from the firm found that people who go into the red by £500 could have to fork out around £360 a year on charges after any introductory offers.
Many banks do offer the same overdraft amount, but charges can often vary, so it is important that you borrowers do their research before committing to a particular account.
Kevin Mountford, head of banking at MoneySuperMarket said: “Many people rely on an overdraft to help bridge the gap between pay days and covering any unexpected costs, and this can be a great way to borrow money, especially if you take advantage of an interest-free overdraft period. However, if you do not manage to pay back the debt within the interest-free period, or borrow more than the authorised amount, then charges can rocket.”
An unauthorised overdraft is when a customer spends more than they have in the bank account, without agreeing it in advance with their bank.
If you happen to go over the agreed spending limit set by your bank it can be very expensive, with often hefty charges having the potential to build up quickly.
Cheaper with a credit card
Like an overdraft, borrowing on a credit card is not something that should ever be taken lightly. But there is not denying that it can sometimes work out as a much cheaper option for those looking to borrow.
Some cards allow money transfers, meaning that customers can turn credit from their card into hard cash that can then be used to clear their overdraft.
Mr Mountford added: “If you often go into the red, then it is often worth looking at alternative ways to fund that overspend, especially if your bank charges are high. Even if you regularly go overdrawn, you can still switch bank accounts to take advantage of cheaper overdraft charges.
“For those who currently don’t have an overdraft, but who feel they might need one, it’s best to err on the side of caution and choose a bank account which does offer an overdraft facility otherwise you can be unexpectedly stung by high charges."