Bank Overdraft VS. Buy Now Pay Later – Which One to Choose? 

Most of us have been in a financial pinch at some point in our lives, and a bank overdraft really comes in handy during such situations. However, like most financial facilities, this one has its fair share of drawbacks. It is imperative that you know all the facts before overdrawing your checking account so as to avoid landing in hot waters. 

There are quite a few circumstances that can lead to an overdrawn account. Maybe you made a deposit earlier in the day, which got delayed, and you unknowingly overspent the amount in your account. Perhaps you forgot to write a cheque to an acquaintance and charged a considerable amount to your account, expecting it to have sufficient funds. 

Conversely, one can intentionally decide to make use of the overdraft facility depending on the need of the hour. It can be to renew a lease, replace a broken laptop, pay for your college tuition, or other emergencies. 

Read along to glean more insights into the meaning of a bank overdraft.

What is overdraft and its features?

Simply put, an overdraft happens when the bank allows a transaction to go through even if you do not have enough cash in your account. While it not seem like a big issue,  an overdraft actually requires you to pay the amount back with an interest rate that’s higher than usual. 

There are many different ways in which you can go into overdraft, such as writing cheques, ATM withdrawals, debit card purchases, in-person cash withdrawals, and automatic payments. 

If this is your first time hearing about this facility, then you might want to contact your bank for more details. Usually, there are two types of overdrafts: an authorised one and an unauthorised one. 

The former means that you and your bank have an agreement in place to specify a certain amount for the overdraft. Make sure to address the topic when opening a new bank account so that the terms and conditions are out in the open and you are well prepared for an emergency. 

As for the latter, an unauthorised overdraft means that you have exceeded the pre-determined overdraft limit, and is subject to the bank’s approval. This might even affect your credit score. 

If you think that an overdraft is quite similar to a loan, then you are right on the money. In both cases, you are borrowing money from the bank, but there are noticeable features to set the two apart. 

Difference between a loan and an overdraft

1. While you loan a fixed amount from the bank, the value of an overdraft can vary as long as it is within the set limit. 
2. A loan is borrowed capital, while an overdraft is a form of credit. 
3. Loans are great for long-term financial plans; on the other hand, overdrafts are great short-term solutions. 
4. Interest is involved in both cases, but the calculation methods are different. 
5. When it comes to repayment, a loan is typically paid off via monthly installments, while an overdraft is paid off by depositing money into your account. 
6. A loan is more manageable due to monthly installment plans that you can pre-plan for ; on the other hand, an overdraft involves no structured payment plan.

Advantages and disadvantages of an overdraft

Here are the pros and cons of a bank overdraft that might help you decide if overdrawing your account is worth it or not. 

The pros

1. It proves to be helpful on rainy days since you have immediate access to extra cash. 
2. Your checks are not bounced even if your account has an insufficient balance.
3. You are able to avoid late payments to other merchants even if you are running low on funds. 
4. An overdraft facility can be availed rather quickly as it does not require a whole lot of official paperwork like a traditional loan. 
5. You are not bound to overdraw a fixed amount; it can vary depending on how much you need. 

The cons 

1. An overdraft comes attached with a sizeable interest rate, so you will be paying back a lot more than the amount overdrawn. 
2. A bank’s overdraft facility is subject to frequent changes, such as limit reduction or a spike in interest rates.
3. The lack of a repayment plan might negatively affect your finances and budgeting since there is no fixed amount that needs to be paid back each month. 
4. You might end up overdrawing your account more often than not, which can be a problem when it is time to pay back the bank. 

What is Buy Now, Pay Later 

If you ever find yourself in a dire financial situation, then it might be beneficial to familiarize yourself with buy now and pay later. 

It is a payment method that more and more brands, companies, and service providers are offering to their customers. It allows you to pay for a purchased good or service via easy installments as opposed to paying it all at once. 

The monthly payment plan allows you to afford pricier items without going over budget. 

Among the several buy now, pay later programs, Atome happens to be one of the leading one. Due to its authenticity and user-friendly interface, the buy now, pay later application is garnering more users by the day. 

All you need to know about Atome

When you select Atome as your preferred method of payment, your bill is divided into three parts that are to be paid at regular intervals. And don’t worry about outrageous interest rates because there are none. Yes, that is correct; Atome payments are free of interest. All you need to do is pay off the total amount spent during the stipulated periods. 

Naturally, the first payment is made on the spot, and you are free to leave with your purchase. The remaining two are charged over time, at monthly intervals.

The best part is the program’s partnership with over 10,000 leading brands, both local and international. You can practically pay for every other purchase via Atome. 

To get started, all you need to do is download the application (get it here) and create an account on it. It works for both Android and iOS devices. You can also download the app from Google Play Store or App Store. 

New Atome users are rewarded a welcome voucher worth $10 to use on their first purchase. That’s not all; various affiliate brands have different ongoing discounts and deals for Atome shoppers. 

Atome’s convenience doesn’t end here. To save you from missing a payment, the app automatically charges it to the debit or credit card listed on your account. 

However, in case of a missed payment, which can be due to several reasons, your Atome account is suspended until the clearance of all dues. An additional $15 administrative fee is charged for the reactivation of your account. 

Conclusion 

An overdraft proves to be helpful in times of need, but maybe it is time that you switched to Atome. It comes with a proper repayment plan, unlike the monetary chaos that an overdraft incurs. Atome doesn’t need you to pay interest or additional charges as opposed to an overdraft. So, get your phone and sign yourself up for hassle-free shopping sprees!