Whilst lots of attention is being given to the increased prevalence of payday loans at the moment, with more and more people looking for money to support them between pay-cheques, some people think they’ve found a way around the issue by dipping into the overdraft on their bank account for the small amount of time it takes for the next lump of cash to be given to them.
However, in the vast majority of cases, these people will find themselves paying far greater fees than they would have with a short term loan and are likely to discover the additional charges only a month or two after they have made use of the overdraft.
Whilst it may be tempting to use a few extra pounds, most bank accounts have huge charges that they will levy on people who use an overdraft without warning. Some of them will even charge administration fees if you even try and go into your overdraft, without actually letting you have the money in the first place.
What’s worse, more and more banks are switching to a daily rather than monthly charge for being in your overdraft, meaning that every day you spend in it costs you more money. All of these things can create a real problem for anybody who tries to dip into their overdraft without realising what can happen, and means that their debt problems become even worse.
However, there are ways the consumers can avoid these pitfalls. For instance, a financial data analyst at Moneyfacts, Charlotte Nelson, says “Authorised overdrafts are cheaper than going into the red without having requested an overdraft. It is worth contacting the bank to arrange an overdraft in advance to allow a bit of breathing space.”
Meanwhile, the Consumer Credit Counselling Service is giving its own advice, hoping to make people more responsible with their debt, saying that “people don’t really think of an overdraft as debt. Whereas you decide to take out a loan or a new credit card, it is not always a conscious decision to use the overdraft facility and it is easy to slip into the habit of using that extra money each month.”
It’s always worth looking at what options are available when you are going to take on extra debt, and ensuring you understand what each of the options mean when you do.