Because making use of an overdraft is effectively borrowing money from your bank, you are going to pay interest on the money you draw. Rates on an overdraft are now consumer specific, but in general a regular salary earner with a good credit record is going to fluctuate around prime plus one percent. On top of the payable interest, you may have to pay for the privilege of having an overdraft, so add a monthly maintenance fee of around R20.
Costs: R5000 at 16.5% for seven days = R5015.82, plus R20 monthly management fee.
Total owed on the 27th - R5035.82
If you frequently overdraw on your account this might be the right solution to stretch your money. If you do require an overdraft enquire at your bank about whether they have a banking product that includes an overdraft facility as part of the monthly admin fee bundle - that way you won't end up paying R20 a month if you don't use the facility in some months. Be careful that you do not go overdrawn without your bank's permission or an overdraft in place, if a debit order goes off and you have insufficient funds in your account you could be liable for a penalty fee of around R75.
2. Swiping your Credit Card
Swiping now and paying later may well be your best option if you plan on paying the amount back in full by your credit card's due date. Many credit cards have a maximum repayment period of 55 days, so depending on when you make your purchase and when you have to settle your credit card bill you could have up to 55 days before you have to settle the bill, and if you pay off the full amount on time it won't cost you a cent more than your original purchase. If, however, you think you might not pay back the money you owe within this time period be wary of the interest charged on your credit card. Most cards charge around 25% interest and can add up if you only pay off the minimum amount each month. Plus, if you are late with your payments, you could be hit with a penalty fee
Costs: R5000 at 25%, charged monthly. =R5000 if paid by the due date, up to 55 days if you swipe the card at the most opportune moment.
If you leave an outstanding balance of R5,000 and pay at the end of the following month = 5,102.74
If you plan on paying off the full amount you owe by the due date, swiping your credit card is the best way to stretch your month-end money. The "interest free period" is the time between your purchase and the date you have to settle your credit card bill. But be aware of your payment due date, because if you don't pay on time a credit card could be more expensive than an overdraft.
3. Drawing money with your Credit Card
Drawing money from an ATM on your credit card is a bad option as you will be charged interest from the day you withdraw money, and some credit card providers actually charge you more for cash withdrawals than for normal purchases. On top of this you will pay ATM withdrawal fees, which increase with the cost of the money that you draw.
Costs: You'll be paying around R75 to draw R5000 from the ATM as well as the interest charges on 7 days of about R24, so a total of R5099,24.
While having the cash on hand is convenient, drawing money on your credit card is seldom ideal because of the costs involved with the immediate interest charges. You're better off swiping your credit card at the till instead of drawing the cash to pay. If you have to have cash make sure you pay off what you owe as soon as you possibly can.
"So what's the best option? It all depends on how much you need and how soon you are going to pay it off.
"If you are stuck for cash for a week or so, then the credit card is the best option-if you know you will be able to pay off the entire balance by the due date, because it will only cost R5,000.
"However, if you don't pay off the R5000 on the due date, the total interest you will owe for the month will be R104.17. R5000 on an overdraft for 30 days will only cost you R87.80, including the service fee. It could even be less with certain bank account packages
"Withdrawing cash on your credit card is never a good idea. For 7 days it will set you back almost R100, whereas borrowing it over 30 days will be more like R180."