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One of the easiest ways to borrow money is to go to your bank and apply for a personal loan or get an overdraft on your existing account. However these can prove to be expensive ways of borrowing money especially if you are overdrawn at the bank without permission or you don’t fully understand the interest rates, the fees applied to the loan or the full terms in borrowing the money.
Borrowing from Banks
Before you considering borrowing money from the bank you should ask yourself:
- Do you really need a loan?
- Can you afford the repayments?
Overdrafts
An overdraft is an agreed limit with your bank to spend more money than what is in your account. Interest is then paid on the amount you use in the overdraft. You also do not need to advise the bank what the money will be used for.
Penalty and interest charges will be applied if you go over the agreed limit on your overdraft without prior arrangement with your bank. These charges can include charges for sending you a letter to advise of the overdrawn amount above the limit as well as for any returned Direct Debits or cheques. The bank also has the right to freeze the account until the overdraft is paid off as well as the Right to Offset any amount owed to them by taking money directly from your wages or benefits paid into that account.
It may also be more expensive to have an overdraft as many banks charge a monthly fee in addition to the set up costs of the overdraft, so if you do not pay it off quickly the overdraft will be expensive.
Bank Loans
A personal loan with your bank is a formal arrangement where you pay a fixed amount on a monthly basis over a fixed period of time agreed at the start of the loan. If you're thinking about taking out a loan, you'll need to agree with your lender:
- How much money you can borrow
- How long you can borrow it for
- How much interest you'll pay
You must also check you can afford to make the monthly repayments comfortably and to ensure not to secure any loan against your property. It is always advisable to shop around for the best deals to find a loan which is affordable in line with your current commitments and level of income.
Difficulty with Repayments
Any money borrowed from the bank whether it is an overdraft, money on a credit card or a personal loan is always a non-priority debt. This means that there is no threat that you will go to prison or lose your home over the debt, however the banks can still take other legal action such as taking you to court to order you to pay back what you owe- often with extra costs on top.
Here is a checklist of what action to take if you owe your bank money:
- Make a list of all your debts
- Decide which ones you need to pay off first
- Work out your personal budget
- Calculate how much you can offer to pay each month
- Talk to your bank about the situation
Managing Repayments
As soon as you know yourself that you are struggling with the repayments you should seek immediate help from a professional. Debt Plan Direct provide a national free debt support line and can provide a free help service providing you with the right resources in dealing with your bank to discuss possible options such as debt adjustment for loan repayments
Missing Repayments
By simply ignoring any letters or calls from your bank will make the situation worse especially if you are regularly missing payments. Your bank is more likely to take you to court for non-payment and lodge a County Court Judgment (CCJ) against you. This will count against you if you apply for credit in any form in the future.
Disputes with your Bank
If you disagree with a decision, you can complain to your bank. Disputes might be about:
- Interest added to a loan
- Extra fees which weren't expected
- Withdrawal of a loan facility
You should write to the complaints department in the bank and give your bank up to eight weeks to try to resolve your complaint. The bank should then send you a letter setting out its final decision and telling you how to contact the Financial Ombudsman Service (FOS) if you're unhappy with the result.
If you don't receive a final letter within eight weeks, and you don't want to give the bank more time, you can contact the FOS for a complaints form.
Contact the consumer free counseling support line on 0845 055 8152 for immediate help and advice
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