Quick Student Loans: Applying for a Student Overdraft Facility
For many students a quick source of finance can be obtained by the application for a student overdraft facility. Whilst banks are often keen to provide such quick student loans, one should consider the pros and cons before enabling such a facility.
Quick Student Loans: The Advantages of a Student Overdraft
In many cases the advantage of a student overdraft relates to the cost of the source of finance. Whilst students with their current levels of income are a relatively poor prospect for banks and financial institutions, the consideration is that graduates will earn greater levels of wealth in the future. As such, banks and financial institutions are keen to get such potential higher earners on their books at an early stage.
For the student, this often means that they as an individual will be able to access credit products, such as an overdraft facility at a reduced rate, as the bank tries to attract the individual as a long term customer. As such, in many cases a pre-authorised overdraft will often be provided free of charge, in connection with a student account.
The second major advantage is that it is often a simple and quick source of student finance. Many banks will open an overdraft facility for a student within 24 hours, making funds available with immediate effect. This is all the more likely, where the customer has a previous good record with the bank.
Quick Student Loans: The Disadvantages of a Student Overdraft
The disadvantages of the student overdraft may be behavioural in nature, rather than directly linked to the product per se. Whilst an overdraft facility is designed to cover shortfalls in one’s monthly income cycle, the result is that many student will simply use the limit as a new “zero.” In reality many students simply spend up to the agreed credit limit each month, meaning that no real benefit is derived from the product.
Such a pattern of poor financial behaviour can lead to future financial issues and debt management problems. Many students, having built up large overdrafts over a number of years find themselves in a position of having to consolidate debt with a loan at the end of their time at University. Such consolidation loans can often be a costly prospect, especially in comparison to the initial 0% rates offered on many student overdraft facilities.
Further concerns to consider are those related to penalty charges and clauses. Whilst an overdraft facility is often provided at 0% interest rate, breaching the limit can result in a cycle of often punitive charges, which far outweigh the initial amount borrowed in excess of the authorised limit.
In summary, the overdraft is a great product if used in the correct way and provides a cheap source of quick financing for those with immediate cash flow problems. However, used badly it can be a source of financial problems in the future, which include the need to consolidate debt and engage in expensive products such as consolidation loans.