Managing your business can be so challenging if you don’t have sufficient funds to cover some the costs; but fortunately banks allow a consumer to perform an overdraft especially when a client has a current account.
A bank overdraft is a provisional financial facility added to bank accounts thereby allowing a client to be able to overdraw in their bank accounts by a certain amount. But worth noting is that a client is charged an interest rate based on the amount overdrawn and the period of time overdrawn.
Meanwhile, performing a bank overdraft has its pros and cons:
Advantages
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Flexible: It is readily available when a client needs it and costs nothing besides an interest fee charged for every transaction performed. It enables you to make your payments in time and assists to maintain steady cash flow.
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Quick: A bank overdraft is fast and simple to organize.
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You are not charged to pay your overdraft earlier than expected.
Disadvantages
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Cost: They come with an interest fee which is much bigger than that of a loan. This in turn makes them expensive and a client is charged high interest rates if he goes over the agreed overdraft amount.
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Recall: A bank can cancel the overdraft if you fail to meet their terms and conditions let alone repaying their money.
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Security: An overdraft is attached to your assets and the bank can take your property in the event of failing to make repayments.
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Bank has the right to ask for repayment of its overdraft at any time.
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Unlike loans, you can only access an overdraft from a bank where you maintain your current account. For you to get an overdraft elsewhere, you have to transfer your business bank account.