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Bank Overdraft Alternatives in the UK

Date April 30, 2017

Bank Overdraft Alternatives in the UK

Every one of us needs money to fulfil not just our daily necessities but also to maintain a standard living style and pay for emergency needs. At times it becomes difficult to arrange your finances, and there is no other solution but to borrow money. Applying for a loan is one way to resolve your financial troubles. However, a loan application is not always approved particularly when a poor credit history is concerned. When one needs immediate cash to pay bills and make repayments for a loan, applying for a bank loan is not a feasible option. There is a lot of paperwork involved and if your application is not approved after all the hassle, precious time is wasted.   

What is Bank Overdraft?

There is one option that many people want to opt for when they are in need of immediate cash, and it is known as a bank overdraft. This facility is usually linked with your everyday bank account, and you can avail it when a cash flow shortfall occurs before payday. It is useful for people who have no savings and no other source of income. However, there is an approved overdraft limit set by every bank, and one may not withdraw more than that limit. If you are aware of this limit, you can stay away from overdrawn fees and other charges.

One benefit of bank overdraft is the flexibility to make repayments. There is usually no set term, like two weeks or 6 months, to pay back the loan. This feature makes bank overdraft an attractive option for many people out there. But with increasing number of bad credit scores, banks are becoming ever more reluctant to lend especially to these individuals who don’t have a perfect or even fairly good credit score to show.

Borrowing from banks in the form of overdraft is not always the right solution. You may find out that there is a monthly service fee that you will have to pay whether you use the service or not. Moreover, this type of loan solution is not feasible for serious financial situations like debt consolidation. They are meant for short-term cash flow problems and not for huge projects like buying a home or a new car.

A negative balance may occur due to any reason at all. But bank overdraft facility is different from a negative balance. It is intentionally provided to the consumer in case he or she is in need of cash and their account balance has gone below zero. There is a limit imposed to overdraft, and the consumer may not be able to withdraw exceeding that limit. Another thing to remember is that using a bank overdraft and not being able to repay in full results in a default and it gets reflected on your credit report.       

Is Bank Overdraft the Right Solution For You?

Remember, whenever someone lends you money you will have to pay back with interest. And in the case of bank overdraft, you will be paying not just the interest but also many other fees including service fee, overdrawn or dishonour fee, hidden charges, and so on. This is not the case with possible alternatives you might have in the form of bad credit loans. If you have already used overdraft and have not been satisfied with its outcomes, then it is not the right solution for you. The overdraft can be refused or reduced by a bank without prior notice, which is another disadvantage. If you happen to violate the terms and conditions, you are charged an even higher interest rate and additional fees.      

A bank overdraft is not the right solution for you, and you shouldn’t rely on it for fast loan if you;

  • have a bad credit score
  • have been turned down in the past by the bank when you applied for a loan
  • are in need of regular cash for debt consolidation
  • are looking for lower interest rates as well as a flexible repayment plan
  • don’t want to pay any additional monthly fee for the service 

Alternatives to Bank Overdraft

In the UK, there are many alternatives available to a bank overdraft to avoid the disadvantages of this credit option. These are known as short-term or payday loans, guarantor loans, doorstep loans and logbook loans. These are loan types specially designed for people with an unfortunate credit history; however, that doesn’t mean that credit checks are not performed by these brokers. Your credit history is duly checked, but a loan is almost always guaranteed because it is being given by a private lender and not a bank or a credit union. It is also known as peer-to-peer lending or crowdfunding, and it is increasingly becoming popular all over the world. 

The loan is easily applied for online and short term solutions like payday loans are transferred to your bank account almost instantly after your application has been approved. You can secure up to £5,000 and even more with a repayment period set to 1 year to 3 years.         

There are three types of bad credit loans offered by online credit brokers. These are personal, short term and guarantor loans. Let’s find out more about these loan types and why they are better than bank overdrafts.

Personal bad credit loans

A trusted panel of lenders joins hands to offer cash to people in need of money to pay for emergency needs. These are unsecured loans and do not require a guarantor. The requirements are usually flexible but vary from lender to lender. There is a type of personal bad credit loan known as doorstep loan, which is quickly gaining in popularity in the UK. When you apply for such a loan, a personal agent arrives at your doorstep to discuss your financial situation and gives you many options to choose from. This type of personal service is very helpful especially if you have a poor credit history and you would like to improve your score. One advantage of a doorstep loan is the fixed interest rate and a short repayment period.

Short term bad credit loans

These are also known as payday loans, and they have many advantages. First off, you get the cash almost instantly in your bank account. There are no strict rules and requirements for these types of loans. However, the applicant must prove that they have a decent income source even if they are self-employed and not working for a company. A payday loan does not require a guarantee and no credit checks are usually performed. So, the loan is almost always guaranteed. However, the term to repay the amount is usually 2 to 4 weeks or till you receive your paycheck.

Guarantor bad credit loans

This is the only secured type of loan available in the category of bad credit loans provided by online brokers. A third person would be responsible for making the repayments if the applicant defaults. Poor credit rating, as well as little credit history, usually compels a person to apply for such a loan. The interest is usually higher than that on personal loans. The guarantor must not be connected with you financially. One advantage of a guarantor loan is that it allows the applicant to apply for much higher amounts because there is a guarantor involved and the lender is satisfied that their provided amount will be repaid.

The requirements for all these types are usually not very strict. You must hold a UK bank account and be over 18 years old. The amount you can borrow depends on your credit score as well as your pay scale in case you’re applying for payday loan. The guarantor you choose must be over 21 years old with a good credit history holding a UK bank account.



Unexpected events sometimes leave us in a situation where it becomes difficult to arrange for finances to pay bills and live up to daily needs. However, there are options designed by the banks as well as private credit brokers that allow the borrowers to receive instant cash. Bank overdraft is a common and widespread form of handling cash flow shortfalls, but it is not provided by every bank in the UK. Moreover, there are hidden charges and additional fees that the consumer might be required to pay.

Furthermore, your application may not be approved for a bank overdraft especially if you have defaulted in the past or have a poor credit history. In such a scenario, the best and most feasible option is to apply for a short-term bad credit loan provided by online credit brokers like CreditPoor. These personal loans are designed to provide you with a chance to improve their credit score by making repayments on time. Moreover, a nominal interest is usually associated with short-term loans like payday loans so that you can easily arrange for the finances and get out of financial troubles quickly and efficiently.     

CreditPoor does not charge any fees. If you are contacted by anyone saying they are calling from CreditPoor requesting you make them a payment you should contact the Financial Conduct Authority (FCA) as we are aware that there is currently a scam using the CreditPoor brand. This has nothing to do with our company.