What's better, as a rule, an overdraft or a loan?

[ThomBat]

Is it better to have an overdraft of about 2k with someone like the HSBC, or is it better to take out a loan and pay the overdraft off?

It depends on the interest rate and whether you can pay either off early

Interest rate on the loan is 9.9per cent on 5k over 5 years.

15.48 per cent interest on a 2.5k overdraft, and we're always overdrawn, it never really gets paid off, it's just always there. Get paid it goes down then by the end of the month it's back up again.

well you could see if you can get a fee-free overdraft somewhere!

actually i personally would try and cut down on spending as much as poss and pay the overdraft off... if you're regularly going into it then you;'ll end up still overdrawn AND with a loan to pay off

0% credit card would be better than either; I thought that sometimes a person could transfer overdrafts to credit card (may be talking rubbish, mind).

Else I'd go for the loan (lower interest rate). Don't run up a new overdraft!

Will you ever pay the OD off?

Could you pay the loan off early?

Will the OD build up again if you pay it off?

loan is much better rate of interest - but I think you would be able to get a better rate....maybe 0% for some time?

How will you pay the load off if you can't pay the OD off?

No answers just questions...sorry

It depends on why you've got the overdraft. If it is for a one-off expense, then a loan is usually better, unless you know that you're going to get the cash fairly quickly. If you have drifted into a od position, then a loan may not help you in the long-term. You need to have your budget under control.

How much can you afford to pay off each month?

You can get a much better rate than that on a loan, TC - under 6% is quite common if you have good credit rating. Look at lovely Martin , the Moneysaving Expert.

In theory overdrafts are better, because you aren't overdrawn all the time so you only pay the interest some of the time, but if you are overdrawn most of the time then at 15.5% a loan would be much better (and fixed as you said so you know where you are with it )

Or you could switch to a much more favourable bank for overdraft charges (eg A&L, free for first 12 months).

thank you. i am So, so crap at finances and so is Dp, not good! Feel like a samll child! Thanks everyone. Bless you all for your sage advice.

I also notice that your od is around £2,500 and you're looking at loans for £5k. Don't do it! You'll feel richer than you really are, and end up in the worst position of having loan and od!

You lot are so great. Very, very true ladymuck.
God, me and DP are so worryingly irresponsible. I'm the worst ever. I've never budgeted for anything, i just spend and spend until I don't have anymore to spend! Eeeek, don't shout at me, i promise to make an effort and try and be better!

Make a list of everything you think you spend.

Then over a month write down everything you do spend

Then compare them

I only spend what is left after DD & savings. Some months I do OK some month I do cr*p

I rarely overspend 'cos I know how much there is

It is important to check that you can afford the loan