An overdraft is a form of credit that is associated with your bank account. It enables you to spend more than the money available in your account up to the allowed limit.
It is a type of consumer credit and is said to be repaid on demand. This means that your bank or institution can ask you to pay it in full at any period they’d want.
Overdrafts come with sky-high interest rates. The interest charges are known to be higher and more expensive than your standard credit cards. This makes an overdraft an expensive way to secure money.
As of April 2020, The FCA or Financial Conduct Authority urged banks to grant a 0% interest rate for three months on the first £500 of overdraft. This is for customers that are affected by the COVID-19 pandemic. The FCA also proposed that all overdraft customers should be no worse off than before the current change in overdraft pricing came into force.
How does overdraft work?
With your new current account, you might be getting an automatic overdraft or if not you can either request one. With an arranged overdraft, your bank agrees that you can spend more money in your account up to the maximum credit limit. Besides, you’ll also be accumulating interest while using an overdraft. Aside from this, there will no extra charges to pay. Once you have an overdraft you can take credit at any time without any ban notice in place.
Dealing with Bank Account Debts
Some accounts may charge monthly fees same as an overdraft. Some may also require you to pay a certain amount each month. If you’re paying each month and can’t afford the repayments, you must consider changing into an account without fees. You should also think if you’re getting money value on your current account.
Types of Bank Accounts
Basic bank accounts do not have an overdraft or cheque book. This means you can avoid spending the money that you don’t have. Some of the basic bank accounts come is in the form of cash cards that you can utilise in cash machines. While some others are debit cards, that you can use to take out money through debit. Basic accounts allow you to sign up for standing orders are direct debit when you wish to.
Current accounts usually come with an overdraft. However, these are optional. You can also set up a standing order or direct debit through it. Once you open a bank account the bank usually conducts a credit check. This means they are likely to refuse your application to open an account when you have poor credit. If this happens, you can try checking bank accounts for people with bad credits.
Where to ask Help with My Overdraft Debts?
It can hard to deal with when you have overdraft debts. As much as possible you have to control spending and live within your means.
We can give you advice that fits your situation on how you can deal with your challenges. Sometimes you need realistic budgeting to make sure that you gain control over your finances. If you need help with your overdrafts, contact us.