£278 warning with Santander, Lloyds, Nationwide, NatWest customers most at-risk
£278 warning has been issued to customers of NatWest, Lloyds, HSBC and Santander over an overdraft issue. Research by TotallyMoney found that one in five people are overdrawn by £697 each day and many high street banks charge daily interest rates of between 35% and 49.9%.
This means the average borrower whose bank is charging a typical rate of 39.9% APR would pay £278 in interest each year. Rates show Santander charge 39.94%, HSBC - 39.90%, Lloyds - 19.9% to 49.90%, Halifax - 19.9% to 49.90%, Nationwide - 39.90%, NatWest - 39.49% and Barclays - 35.00%.
TotallyMoney found that cheaper borrowing alternatives might include credit cards, which have an average interest rate of 21.7% APR, or personal loans, which have a typical APR of 8.69%. Alastair Douglas, TotallyMoney’s CEO, said: “Overdrafts are, for many, a ghost debt. They may have applied for, or been offered it years ago, and it simply sits as an extension to their current account. There’s no separate card, bank, or app – and the customer may not even be aware that their overdraft is a type of borrowing, or that they can be quite expensive.
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“And because there’s not the same balance transfer offers you can get with credit card debt, some customers might be sitting in their overdraft for all, or most, of the time. This means they might be paying interest month after month, and struggling to get back in the black.”
Andrew Hagger, personal finance expert at Moneycomms.co.uk, said: “There was a time when authorised overdraft rates were pretty much on a par with standard credit card rates, but now it’s very different, with overdraft rates heading towards double the rate of credit card interest.
“Paying from 35% to nearly 50% for an overdraft is difficult to justify, especially as this is for an agreed overdraft limit. If you’re only borrowing for the odd day here and there it’s less of an issue, however if you’re in the red for a couple of weeks or more each month, these rip-off rates will only make your financial position worse.
“Rates of 35% or more are usually associated with borrowers who have previous credit issues and are classified by banks as ‘subprime’ borrowers. Using a credit card can be a far more cost-effective way of managing your cash flow these days, even more so if you’re able to clear your statement balance in full each month.”