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Consumer may end up paying through the nose for using overdrafts for Christmas spending

January 15, 2009 by admin  
Filed under News, News-Banking

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Industry officials have warned that many consumers may end up paying through the nose for using their overdraft facilities to fund the expense of Christmas. Many may also be planning to dip into their overdrafts to make purchases in the January sales, resulting in an increase in the number of people that will be hit with these charges.

Officials have said that the interest rates on overdrafts have risen by around 7 percent over the last year, which means many will end up paying a small fortune in interest for the privilege of using their overdraft facilities.

Since November of last year it is thought that around two thirds of major banks and building societies have increased the interest rates on overdrafts. These increases come despite the fact that the base rate has plummeted from 5.75 percent in November of last year to just 2 percent in December of this year.

Those planning to use their overdrafts to make purchases in the New Year or to hit the sales are advised to first check the interest rate that their bank is charging on these overdrafts, as otherwise they could end up counteracting any savings made on sales bargains by having to pay high rates of interest.

One industry official said: ‘The base rate has decreased significantly in the past year, but major banks and building societies all charge customers more for borrowing. If you know you will dip into your overdraft and worry about getting close to your authorised limit, ask your bank if you can extend the facility for a short time. There is usually no fee.’

Another said that it may be more beneficial for many to use their credit cards, especially if they tend to be overdrawn regularly, stating: ‘If you are permanently overdrawn and close to your borrowing limit or there is evidence your borrowing is increasing monthly, the banks are unlikely to increase your credit. Your bank may also ask you to switch your borrowing to a personal loan and then cancel your overdraft limit.’

Tags: Business Finance, sales bargains, borrowing, expense, New, base, overdraft costs, Christmas spending

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