For many the overdraft represents one part of wide range of student finance options. This article considers the pros and cons of the student overdraft.
On deciding to undertake further study at University, many students will be offered a wide range of financing options from banks and other financial institutions. Products include student loans, credit cards and overdraft facilities. The student overdraft can be a useful tool however, it is also one which can lead to significant long term financial problems, if not used right.
What is an Overdraft Loan Facility
Simply put an overdraft is a form of short term loan between the bank and an account holder. The overdraft facility allows the account holder to run a negative bank balance to a pre-agreed level, without incurring penalties. Overdrafts typically do not have repayment dates, as with standard long term loans and may be seen as an “ongoing” source of finance. Many student overdrafts however, are required to be paid back within a specified period of time after graduation.
Setting up a Student Account with an Overdraft Loans Facility
Generally most banks offer an overdraft facility as a standard feature of a student account. In order to obtain the feature a student usually needs only to “opt in” when setting up the account in the normal way. In order to qualify for a student bank account, most banks will require proof of either current attendance on a full time course. Alternatively proof of an upcoming placement may be accepted.
In choosing an overdraft there are a wide range of limits and options available, in the first case one should ensure that the overdraft is interest free and has no associated charges. Secondary conditions worth bearing in mind are, “can the overdraft be increased after the first year?” and “how soon does the overdraft have to be paid back after graduation?” Banks often offer a variety of incentives to sign students up to accounts with overdraft facilities, whilst one should take advantage of these offers, they should not be used as the basis for serious financial decisions. In making a decision, the terms and conditions of an account and its features are much more important.
Read on
The Great Banking Rip Off The more finance is regulated the smarter banks become at ripping off their customers. Avoid the clever methods used by banks to maximise profits.The Pros and Cons of an Overdraft Facility
The major advantage of a student overdraft facility is that they are usually provided at a 0% interest rate, with no additional charges. As such the student overdraft is one of the cheapest forms of finance available, even when compared to an SLC student loan. As such, even if the extra finance is not required it may be worth considering the profit which can be made from using the overdraft limit to invest in an interest bearing investment, such as a cash ISA.
The overdraft facility does however, have its negative points. Like all overdrafts, the facility is a short term credit agreement. Technically a bank can call in an overdraft with very little notice, although this is unusual with a student overdraft.
Similar Posts:
- Overdraft Fees Can Become a Major Household Expense
- Are Payday Loan Advances Too Expensive Compared to Other Short Term Finance Facilites?
- Student Consolidation – Student Loan Help And Relief
- Consolidation Loan – A Good Way To Clear Your Debts
- How student loan consolidation program to choose to lower prices
Tags: Overdraft, Student Finance
Recent Comments