Posted in: Overdrafts

Should I Have to Pay to get an Overdraft?

There are some lenders these days that will charge and arrangement fee if you want to get an overdraft. This is pretty new thing because the way that overdrafts work has changed fairly recently. Therefore, banks cannot charge in the way that they used to. It is good to make sure that you are aware of how they now work and then decide whether you think that it is worth paying that fee.

How do overdrafts work now?

It used to be the case that there were two types of overdraft. The arranged overdraft allowed you to borrow an amount agreed to with the bank and you would be charged a certain percentage of interest and maybe a fixed fee for going overdrawn as well. There was also and unauthorised overdraft where you would either borrow more than this agreed amount or you would borrow money when no overdraft has been arranged and you would often be charged a daily charge and a higher interest rate for this.

It was deemed unfair that these charges were so complicated. It was difficult to easily compare banks to see how much each was charging and it was confusing to calculate the costs with there being flat fees and percentage rates and therefore there was an overhaul. These days there is only one type of overdraft and interest is usually charged at 35-40% with no additional fees.

How much is charged?

So as you can see the charge is now around 35-40% interest. This is quite a high rate compared to some other types of borrowing. You may also find that some banks might charge an arrangement fee on top. This will cover the administration costs of setting up the account, but considering how much they are already making from the interest, it can seem a lot.

Is it worth it?

Whether you feel that paying this is worth it is very much a personal thing. If you are used to using an unauthorised overdraft and the high costs associated with that, this new system could mean that you will be paying less than before. However, if you were using an arranged overdraft before, then it is likely that these costs will be higher than you are used to.

It is good to think about whether you think that it will offer you good value for money. Consider what you are getting in return for borrowing. Obviously, you will be getting the money, but think about what the money is being used for. Is it worth paying this extra money? Is there an alternative to borrowing the money and is this better value? It is good to question yourself and also investigate the costs of other methods of borrowing that might be available to you as these could be cheaper.

You might also be well advised to compare the rates between different banks. Obviously, it is much easier to just get the overdraft from our bank that we have our current account with right now. However, this can be expensive and you may find that if you compare the rates between the different banks you will be able to see whether you can get a better deal which may mean that you pay less. Some banks may not charge a fee but they will all charge interest so make sure that you check both if you are trying to identify which will be the cheapest. So, in answer to the question posed, you will always have to pay for an overdraft and that will be an interest payment but there may be an arrangement fee as well. Whether you feel this is worth paying will depend on what you need the money for as sometimes we will be prepared to pay as we have no other choice of need some items we cannot afford and other times we can wait and save up or go without and it will not be worth the money.

Posted in: Loans

Where is the Best Place to get a Loan?

If we want to borrow money, then we will have a big choice of different places to go and get a loan. This means that we will need to decide who to pick. It can sometimes be an easy decision, if we have a specific lender that we always use, but often it is tricky. We will want to find the lender that will offer us the best value for money and this can be pretty tricky. There are some things that you need to consider which should help you to choose which lender to go to.

The type of loan that you need

The most important thing to establish is that you are using the right loan for your needs. You need to therefore make sure that you know how much you need to borrow and what for and this should help you. This will reduce your choice a lot and you will therefore cut out a lot time by deciding on this first. You can also cut out some loans because they are designed for only buying specific items and unless you are buying a home, for example, you will not need a mortgage.

How much you are prepared to repay

It is good to then have a think about how much you are going to pay for your loan. All loans have a cost but you want to make sure that you are paying a cost that you are happy with. Some will be more expensive than others and so compare those costs. You will find that some lenders might be dearer and you will generally pay more for a more well known lender because they can charge more due to the fact that people just trust them more because they have heard of them.

How much you can afford by way of repayments

It is also extremely wise to think about how much you can afford to repay. You need to think about what you normally pay out and how much you normally earn and whether you normally have much money left to pay for other things. You loan repayments will need to come out of this so you need to have enough. You may find that you will be able to change the amount of money that you spend so that you can free up money for repayments. However, you need to make a specific plan to do this and work out precisely what you will give up so that you can afford what you need. This could be tricky as you may have to give up things that you like buying. Do remember though, that you might be able to save some money if you pay less for some items as well. This could be achieved by doing price comparisons and switching to cheaper providers, suppliers, retailers and brands. Of course, you may already do this and therefore may not be able to spend less this way.

Features of the lender

There might be features of a lender that are important to you as well. For example, it might be that you want a lender you have heard of, used before, that has a local branch, that has been around for a long time. That has a good reputation or that has good customer service. It is not always easy to find out all of this information though and it is worth knowing that just because a lender is not well known it does not mean that they will not be good. In fact a newly established lender or one that is small, will rely on good reviews and word of mouth recommendations in order to get new customers so may be better than the more well-known ones.