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Overdraft

Is it Wise to Use Your Overdraft?

Many people have an overdraft with their current account. This is an opportunity to spend more money than they actually own without having to specifically request it. You will have an agreed amount that the bank will let you borrow at a certain interest rate. Anything above that will not only be charged for at a higher interest rate but there will also be additional and often very high, charges.

Whether it is a good idea to use your overdraft will normally depend on what you need to borrow the money for and what alternatives are available to you. It is always wise to keep an eye on your current account balance and make sure that it is not going overdrawn without you being aware. It is always a good idea to know what is on there, what is due to leave the account and when so that you do not accidently go overdrawn. You can do this using some ATM’s, online or telephone banking or by speaking to your branch regularly.

However, if are sure that you need to borrow some money, then it is worth looking at the different types of credit available to you. There are many types of loan and an overdraft can actually be quite expensive compared to some other types, but it can depend on how much you are borrowing and how long for.

If you are just borrowing up to the agreed amount on your overdraft and then it is all paid off when you next get paid, then the cost may not be too expensive. However, if you go beyond that agreed amount into an unauthorised overdraft then the combination of interest and fees can make it one of the most expensive ways to borrow money. This means that you need to be very careful. It is always worth comparing costs of borrowing anyway so that you use the cheapest method.

One potential problem with an overdraft is that there is no necessity to pay it back quickly. With personal loans, for example, you will charged a certain amount each month which will cover the costs of the loan as well as repaying the money borrowed. With an overdraft it just gets paid back automatically when the current account gets credited with money. This may not happen very quickly and it could mean that the loan goes on for a long time. You may also find that even if you pay it back quite quickly, it will leave you short of money the next month and you will borrow again. If this happens for many successive months the cost can get so high that you could end up being in debt all of the time.
An overdraft can be very easy to use as well. You do not have to arrange it with the bank every time you want to use it and this means that you can just use it when you need it. This could make it too easy to use. Some people even see it as their money that they can spend and then end up wondering why they have so little money as they have not allowed for how expensive they can be to pay back.

It is worth remembering that borrowing should normally only be done in an emergency. This means that if you can go without things and therefore not go overdrawn, you should try to do this. Obviously we have to pay certain bills and feed ourselves, but often people go overdrawn because they are buying too many things and not keeping track of how much they have spent. It can be worth writing down your purchases, your regular bills and your income so you can make sure that you are not overspending. If you keep a close eye on your current account then there should be no reason why you should go overdrawn.

So it can be wise to use an overdraft if you need money quickly and have no other way to get it. However, as it can be an expensive way to borrow it is best to try to avoid borrowing at all or using a cheaper form of lending if you can find one.

Mortgages

How Much Deposit Should you save for a Mortgage?

If you want to buy your own home then you will be most likely to need to borrow the money to pay for it. This tends to be done using a mortgage. However, to show that you are capable of making repayments and to provide some equity in the home, the lender will usually ask you to pay a deposit. This means that they want a sum of money put against the home from you before they will lend the rest of it to you.

Most lenders will want a certain percentage of the value of the home. There used to be a time when it was possible to have a mortgage with no deposit or a very small one, but these days a lender ill normally want about 10% of the property value. This can be a large amount of money if the property is really expensive and it can be hard to save up. However, once you have taken out the mortgage, you will have to make the repayments each month and so you will need to be used to spending out extra each month and you can use the amount that you were saving towards the deposit as your repayment amount.

May people will just save up the minimum deposit or if they do save more only pay the minimum deposit. However, it could be wise to pay more if you can. This can have a number of advantages. Firstly it will mean that if, for any reason, you need to sell the house quickly and its value has gone down, you will have enough equity in the home to still be able to repay the mortgage with the proceeds of the sale. If your deposit is small you may not have enough and could be in trouble. Also you need to consider that your mortgage is expensive and every penny that you borrow, you will have to pay interest on. This means that if you pay a higher deposit then you will not have to borrow so much and this could help you to pay less in charges for your mortgage. Of course, some people may use a higher deposit to be able to buy a more expensive house and therefore not have an effect on the cost. This is another big advantage of saving a larger deposit. It means that you have more choice when it comes to picking a property and you will be able to get something bigger or in a better area or both, should you decide to borrow the maximum amount that you can.

Deciding the specific amount can be tricky when you first start saving. You will not know what sort of price the home you are intending on buying will be and so it can be hard to set a savings goal. However, it will not hurt to take a look at the housing market and see what the average house prices are. Then you will be able to get some sort of idea as to what things cost and ow much you need to save. Then you should set yourself a goal of saving a certain amount each month. Consider when you want to buy a home and how much you will need to save up each month to be able to afford it. This could be more than it is possible for you to save. However, it is worth considering where you can cut down your spending to help you to save more. You could also think about whether there are any ways that you could earn more money. You could do more hours at work, ask for a rise, sell things, start a business or do some freelance work. There are ways to earn online and offline which could help you out but you will need to check with your employer to make sure that it is okay for you to get a second job.

You may feel that you want to keep some savings to fall back on and so not pay everything that you can afford into a deposit. However, it could save a lot of money if you do this and you can always borrow if you really need to but the chances are that you will not need to and will save a lot of money as a result of paying a higher deposit.

Lending

Should you Lend Money to Your Children?

When children need anything, as parents, we do what we can to help them. As young children they are completely reliant on parents so we buy them everything that they need from food and clothes to toys and books. However, there comes a time when parents tend to leave children to look after themselves. This tends to be once they start earning money and have left home. However, there is still a tendency to spoil them and make sure that they have everything that they need. Sometimes this even leads to parents lending money to their children. But is it a sensible idea? It may seem a good idea initially but it is worth thinking it through to make sure you are completely convinced.

A lot of borrowing that is done these days is to pay for items which are not necessary. By borrowing money to pay for luxuries we are paying far more for them, due to the cost of the borrowing and therefore wasting money, compared to saving up and then paying for the item. If parents lend money to their children for things like this, they will get into the habit of borrowing rather than saving. If the loan is free to them, which often is the case when parents lend to their children, it means that they will get used to borrowing without any consequences. Then when the parent is no longer able to lend money, they child will borrow from a lender and have to pay the interest and fees. They will be in a habit of borrowing and think that it is the way to buy things and therefore it could be too late for the cost of the loan to have enough impact for them to change their ways. By teaching children to save up for things and not to borrow unnecessarily, this will be a far better lesson for them and they will be far better off in the long run as they will not be spending unnecessary money on borrowing money.

Of course the children may be borrowing for essential items. They might want to borrow money for a deposit on a mortgage, to pay for bills that they cannot afford or things like this. In this case it can feel like you have no choice but to help them, particularly if they have no available money and cannot get a loan elsewhere. No parent wants to see their child struggle and suffer but you may still be doing more harm than good if you do lend to them.

Lending money to children can also have an impact on your relationship with them as well as with your other children. They may think that whenever they need money they can come to you and if you are not able to help them when they need it, they might get annoyed with you. They may start to rely on you for money and if you are not able to help them they may get cross with you. You may also find that other children want help as well and want to borrow money from you. If you do not have enough to help them all, that could put pressure on you and could cause jealousy between them and affect your relationship with them and all of your other children. It could affect their relationships with each other as well.

It can be much more valuable if you help your children to understand the benefits of saving money for an emergency so that they do not need a loan. Also show them how to spend well and earn well so that they have enough money available to save some each month. If they do not learn this, but learn that they can keep on borrowing money as often as they like, they could end up with a lot of debt and not understanding how to look after their money well. It can be very hard refusing your children things that they want. However, you could be doing them a big favour by refusing as they wil have to learn how to save up as well as learning about the pitfalls of loans. You will also not be risking damaging your relationship with them and your other children.