Bank Overdrafts Becoming More Expensive
There has been good news over the past month for those people who are currently making repayments on a mortgage or other personal loan, as the Bank of England announced a cut in the base rate of interest of half a per cent, with the realistic prospect of further rate cuts on the horizon, possibly as soon as November this year.
However, it is not the same story for those individuals who have overdrafts on their bank accounts. According to research from Money expert.com, the average interest rate charged on a bank overdraft facility has increased by 1.35 per cent since June this year and the typical cost of an authorised overdraft now stands at 13.06 per cent, whilst the interest rate which is being paid to savers by the very same banks has dropped to an average of 1.85 per cent, from 1.98 per cent in June.
Sean Gardner of Money expert.com said “While attention has been focused on whether or not banks will survive in the current financial crisis they’ve been quietly raising rates for borrowers and reducing them for customers in credit. The Bank of England may have cut rates with the likelihood of bigger cuts to come but customers using their agreed overdrafts are not feeling any benefit.
The banks are understandably concerned about the risk of bad debts and are tightening up on lending rules. For customers with debts the message is clear. They need to work to reduce debts or ensure that they get the best rate possible for their borrowings and then work to reduce debt.”
For those individuals who use their overdraft on a regular basis, or remain constantly overdrawn, a much cheaper option could be to apply for a personal loan to cove the overdraft amount.
For someone with a good credit rating there are still plenty of good personal loan rates to choose from and this option could save them a considerable amount of money over a term. However, they must be sure to avoid running up a new overdraft balance once the original amount has been cleared.
