Overdrafts technically refer to a situation wherein; withdrawals from the bank account exceed the bank balance. Practically however, there is much more to this simple balance – withdrawal mismatch. Overdrafts are a financial tool, which many wise businessmen and individuals have deployed on several occasions, to earn benefits in the long run and prevent debt problems.

Overdrafts in fact have helped at several crucial instances like debt management and consolidation or involving taking out further debt in the form of loans. Payday loans from short term lenders are designed for this very purpose,see here simplepayday.co.uk/cash-loans. The stated might seem absurd to many, who are often busy ensuring that there are no overdrafts to deal with. Therefore to clarify on the remarked and present substantial grounds to validate the sensible usage of overdrafts, an overview of this instrument or strategy is presented below.

UK related legality clauses of overdrafts facility

Before elaborating on the various possible modes in which overdrafts can be of assistance, it is pertinent to understand the overdraft protection feature in the United Kingdom.

In the UK, banks have an authorised overdraft facility for credible accounts, wherein based on the balance maintained in the bank account, authorized overdrafts can be drawn, without any corresponding interest charges. Exceeding the authorized limit however, might call for respective fee factors. The legal age for applying for an overdrafts facility is 18. It is a mutually agreeable concept, between the bank and the account holder. As per the Office of fair Trading, overspending of credit card limits, in more than one ways, is synonymous to unauthorized overdrafts facility and therefore calls for interest / fee.

How can overdrafts help?

Short term coverage – The foremost advantage of using an overdrafts facility relates to the short term cover it extends. Business requirements or any other personal, temporary cash mismatches can be effectively dealt with overdrafts. With no additional cost to bear, overdrafts serve as an immediate solution, to many difficult debt problems.

Salary before the payday – It is not always possible to postpone all important financial needs till the payday. Neither is it always feasible to save for every unexpected requirement. With overdrafts at easy access, earning the salary before the payday is probable.

Scope for errors – With overdrafts to offer cushion, there is a scope to be slightly relaxed. Minor mistakes in accounts or small term organizational inabilities can be covered by seeking overdrafts.

Unexpected withdrawals – It is possible that you permitted withdrawal months ago, but the recipient used the access now. This debit situation and thus the debt problems, which bang on, without a preceding warning system, is successfully countered by overdrafts facility.

Check issuing facility – With overdrafts to cover up in short term, the account holder has the liberty to issue checks or make debit, when funds are shortly expected.

In addition to the stated, there are instances when inadvertently overdrafts are used to avoid various eventualities, like in case of bank error. Other instances to this list include account robbery, within a day balance mismatch, ATM related frauds, etc.

In a nutshell, overdrafts are flexible short term borrowings, which can be effectively organized to manage the overall cash position.

This article was written by Joejoe

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