How Much Is Your Overdraft Costing You?
Overdrafts can be useful in a number of ways. In some cases, an overdraft can be as expensive, sometimes almost as much as a payday loan. That is why it is important to know how much your overdraft is costing you and whether it is appropriate for your financial needs.
Hidden costs
In a recent survey, it was found that 8.9 million people were not aware they had gone into an overdraft, without knowing what charges they were being hit with and how much it cost them.
A big problem can come when an overdraft is unplanned. This can be as much as £5-£8 a day, as well as additional interest and monthly charges. Your bank should inform you when you are about to go into this, usually via a text message. If you do not have this, you should ask your bank if they can provide this.
With planned overdrafts, it is also important to be aware of how much you are being charged as well. The longer you spend in an overdraft, the more you could be paying in terms of additional daily charges.
Alternatives
It is important to consider what alternatives are available to your overdraft. A 0 per cent balance credit card or a personal loan may be a better alternative. It is a matter of looking at the rates involved so that you can judge what is the best option.
You also need to be aware of what you are signing up for when comparing alternatives. With a credit card, you may have an interest free period for a fixed amount of time. However, if you do not pay after that point, you may find yourself being charged more interest.
This is also true with loans. Oddly enough with loans (and this may seem counter-intuitive) sometimes it can be expensive to pay a loan off early. You need to consider how much you need to repay each month, making sure you budget for everything else during the month as well as the loan repayments.
Setting up an account
If you are in the process of setting up an account, then a bank may offer you an overdraft as part of it. However, it is vital to consider whether or not that overdraft is necessary and to only ask for an amount you can reasonably repay. It is also worth looking at other benefits that come with an account such as travel insurance, to see whether or not it is appropriate for your requirements.
We can help
At Larcomes Financial Services we want to help people get more from their money. We believe in offering a personal service coupled with the resources that you want from a larger company. For more information or to discuss your