Last post: Sep 1, 2017
While many Brits wouldn't bat an eyelid at making use of their overdraft, most of us would give an unsecured loan much more thought. Yet, over time, a loan can be more cost-effective than delving into your overdraft. Here's how to crunch the numbers...
Do you know how much it costs to use your overdraft? Many of us don't think twice about the price of dipping below zero in our bank accounts. Yet the overdraft charges (both planned and unplanned) which our banks saddle us with often add up to much more than you might realise, in some pretty sneaky ways.
If fact, overdraft charges are proving so expensive, government and the FCA (Financial Conduct Authority) has been taking banks to task over the issue. In July the FCA mooted banning all unarranged overdraft charges, preventing banks from effectively loaning money without the user's explicit consent.
A number of banks have already taken steps to get ahead of this curve. Lloyds has announced it will scrap unarranged overdraft fees from November and Barclays has already stopped the practice. But this isn't true for every bank and April's Government bill is yet to make inroads when it comes to planned overdraft charges.
So would you be better off using an unsecured loan rather than dipping into your overdraft?
That really depends on your bank and the lender you choose to borrow from.
- Carefully calculate exactly how much of a shortfall you have (i.e. how much you'll need to borrow or how deep you need to go into your overdraft) and how long you'll need the extra money for
- Make sure you know exactly what fees and rates of interest both options involve (you can find out about our unsecured loan rates here)
- Explore in depth to find out more about penalties if you are unable to meet repayments
- Consider how often you are likely to dip into your overdraft (the more frequently you do so, particularly if it's unplanned), the more fees you're likely to need to pay
- Tally up all this information (a spreadsheet might be useful) to find out which option will be cheapest overall – you may be surprised by the results.
Available up to £25,000, our unsecured loans enable UK residents over 18 to source flexible finance, when they need it. Ask us about our rates of interest and fees today to find out whether an unsecured loan could be a better option for you.
Comment