Personal loans vs overdrafts

• Secured loans, backed by an asset such as the car you're buying. They usually have lower rates and higher limits.
• Unsecured loans, with no asset at risk. Rates are higher and limits usually lower.
• Variable rate loans, where the rate can move with the market, so repayments can change. Many allow free extra repayments and redraw.
• Fixed rate loans, where the rate and repayments stay the same for the whole term.

• Usually a lower rate than an overdraft.
• You can borrow more than a typical overdraft limit.
• A set end date, so the debt is gone by a known time.
• Many lenders decide quickly and pay within a day or two.
• You pay interest on the whole amount from the start.
• A secured loan puts the asset at risk, and missed repayments are recorded on your credit report.

An overdraft is a credit limit on your everyday bank account. You can spend past zero up to the limit, often a few hundred to a few thousand dollars, and only pay interest on the amount you use, for as long as you use it. If your limit is $1,000 and you use $50, you pay interest on $50.

There's no set repayment date, but the sooner you bring the account back above zero, the less interest you pay.

• Suits short gaps, such as a bill due before payday.
• Instant access once the limit is set up, with no new application each time.
• You only pay interest on what you use.
• Rates are usually higher than personal loans, and some charge a monthly fee.
• Limits are lower, so it's no help for a large cost.
• With no end date, it's easy for the balance to linger.

A personal loan and an overdraft are both credit, so both are listed on your credit report, along with whether you pay on time. Repaying as agreed builds a positive history; missed payments do the opposite.

If you know how much you need and want to pay it off over time, a personal loan is usually cheaper and more structured. If you need a buffer for occasional shortfalls and will clear it quickly, an overdraft can be more convenient.