Did you know that an overdraft can cost you a lot more than a payday loan?
Which? magazine has recently researched unarranged overdrafts and has found that customers going overdrawn by as little as £100 can incur £156 more in fees than can legally be charged by “payday” loan companies.
The maximum a loan company can charge for borrowing £100 over 30 days is £24, or 0.8% interest per day. Which? found that some high street banks were charging up to 7.5 times this amount!
And even if your bank looks like it’s trying to help you, by making payments over your overdraft limit, the fees charged can be even higher.
These charges mostly affect the most vulnerable customers – those whose incomes are erratic or who have unexpected, emergency expenses – and it seems very unfair that banks should be able to capitalise on this by charging customers exorbitant fees.
So here are a few tips to help you avoid these charges:
1) Know what your regular outgoings are – go through a recent bank statement and make a note of the dates and amounts of your regular Direct Debits and Standing Orders. Then make sure you have enough in your bank to cover them.
2) If you have unexpected expenses – your car breaks down or your fridge blows up – try to spread the payments or borrow from a cheaper source. Even if it has to be a few hundred pounds for a few months, this may well be cheaper than going over your overdraft limit.
3) If you can’t avoid going over your overdraft limit, speak to your bank before doing so. They may be able to offer a much cheaper, arranged overdraft to tide you over.