If you need to borrow money quickly and you have already established a cheque account with you local bank,
you can actually borrow money from your bank by getting their permission to write what is known as an overdraft cheque. Or you can go the more traditional route of securing a bank loan. Either way you borrow the money you have to be aware of the interest rates, fees, and terms that are involved with these transactions. They may help you for a small amount of time, but they could very easily cost you more than you planned.
Overdrafts work on the premise that you and your bank have agreed on a certain amount of money that you are allowed to spend above and beyond what is actually in your cheque, or current, account. You have to get permission from the bank to use the overdraft money but you do not have to tell them what you are using it for, and you only pay interest on the money that you use. You are also likely to be asked how you intend to repay the overdraft. If you go over your current account limit or use your overdraft without asking for permission from the bank first, you will probably have to pay a penalty charge and a high rate of interest. The bank could freeze the account until you pay the overdraft, so it’s imperative that you agree it beforehand, including how long you have until it needs to be repaid or reviewed.
A bank loan
is a typical formal loan that you take out with your lender for a fixed amount of time that is typically agreed upon at the start of the loan. You need to be able to tell the bank how much you want to borrow, how long you need it for, and >they tell you how much interest you will pay on the loan. All of the payments need to be made on a monthly basis, and you should always compare interest rate prices with other banks to get the best rate. These loans can be secured – which means you put your house up for collateral – or unsecured with no collateral needed.
If for some reason you cannot pay back the bank loan or overdraft – maybe due to loss of job or illness – it is important that you contact your lender right away. You should always make a household budget with all of your debts listed. An overdraft and bank loan is considered non-priority which means you may not lose your home or go to jail for defaulting on the loan but your lender could still bring legal proceedings against you. Offer to make smaller payments that you can afford or accept an offer the bank may have that is better than yours. If you do not speak to the lender about your loan, you could have a county court judgement awarded against you and it will prevent you from getting credit in the future.
You do have the option of working with your bank to get a better offer on rates and conditions if you are going for an overdraft or loan. To do this you could write a letter to the potential lender stating why you need the money, how long you need it for, and how you are going to repay the money. They may accept your offer, which would be to your advantage. Additionally if you need to dispute the lender for any reason, do it with a letter and give the bank up to eight weeks to determine where your problem may have happened.