If you’re one of the millions of bank customers with an arranged overdraft, you should by now be aware that you’ll soon be paying an equivalent APR interest rate of around 40% to dip into it.
These changes follow a review by the Financial Conduct Authority (FCA) into how charging for overdrafts work – all banks are now obliged to set a transparent interest rate on their overdraft products by April 2020 and many have moved sooner.
An arranged overdraft is where you have an agreed credit limit set in advance with your bank, and according to the FCA, around 19 million people use them each year. Whereas in the past it’s been unclear how much exactly you’d pay for using the overdraft, in future the APR rate will mean that you can compare costs across banks more easily.
The changes follow over a decade of campaigning by the likes of Money Saving Expert, Martin Lewis, and come on the heels of changes which banned the unfair treatment of those using unarranged overdrafts where the charges in some cases were worse than payday loans.
But while the new changes were aimed at boosting competition, it’s been widely noted in the media – such as by the BBC here – that the major banks have all clustered around 40% APR, leaving little to choose between them.
How we could help: consolidate and save with the credit union
The Co-op Credit Union could help you to avoid these expensive interest rates by offering an affordable credit facility to pay off your overdraft, consolidate your debts and give yourself some breathing space with a manageable monthly repayment and a significantly lower interest rate.
As an example, we could save you almost £500 in interest over two years on a £2,500 overdraft, based on a credit union loan at 19.8% APR Vs a 40% APR bank overdraft*. Why not try our loans calculator here to find out how much you could save.
We offer a range of convenient payment options from direct debit to payroll deduction for those working for one of our employer partners, such as The Co-op Group or Co-op Funeralcare
We’ll also help you to start saving alongside your loan so that when the need arises in future, you can avoid credit altogether.
More information on how we can help you take back control of your finances is available here.