All About Loans Weblog

According to a recent survey there are over two million people who are permanently overdrawn and fall into the red twenty-seven days after payday.  The survey went on to show that almost half of Britons who work have slipped into the red at least once in the past twelve months, which means that more than ten million people have fallen into the red at least once with a further 2.1 million who are continually overdrawn.

It is estimated that for the first twenty days of the month many people are able to stay in the black, however on average most people end up falling into the red 27 days after payday, with the typical payday being the 24th of each month.  These findings come as no surprise, especially with the current rate rises from the Bank of England.  Because of the five interests rate hikes over the past eleven months many consumers are starting to feel the pinch and are struggling to make ends meet.  Although the Bank of England recently dropped the base rate by a quarter point, many lenders are slow to pass this on to their customers and it is only a tiny amount compared with the sharp rises experienced in the past year.

As more people struggle to pay all their bills, mortgages experts advise consumers to beware of overdraft interest rates.  Because a large number of working people are constantly living in the red it is advised that they be aware of the interest rate that is being charged on their overdraft, as well as the fees that banks may charge if you go over the authorised limit.  By going over the authorised limit you are then risking having your account charged a sharp penalty for breaching your agreement.  These fees can then add to your debt meaning that more people end up dipping into their savings.

For many, the high rate of overdraft interest (which is stealthily applied and rarely advertised on bank statements), can be the equivalent of borrowing double on a cheap loan. This means that taking out a debt consolidation loan to clear high rate credit cards plus a constant overdraft can be far cheaper for debt-ridden consumers.

Five consecutive interest rate rises over the past 12 months meant that households are now facing a record debt burden. Even now that the base rate has dropped by a quarter point, it will be a while before financial relief is felt by most UK households.

Recent research suggests that 19p out of every £1 earned by households goes towards repaying accumulated debt and the interest on that debt. Although this sounds grim, much of that debt is secured against property, rather than in unsecured loans and high interest credit.

The previous debt record was back in 1990 when debt accounted for 18p in every £1.  The burden of debt has been on the rise since 1997 when the figure was just 12p in a £1.

Even with the recent drop in base rate, the debt strain could get even worse by the end of the year. More and more of us could start to find it increasingly difficult to pay off our debt and more and more of our income goes towards servicing our debt. This is always true around Christmas and New Year when people spend beyond their income.

The reason we are feeling a real squeeze on our finances is not only because of increased borrowing but also because of modest earnings rises since 1997, rising utility bills, higher petrol prices and the increase in interest rates. All these things leave us with less real disposable income, but a sense of entitlement towards the ‘good things’ in life means that many families take out loans to finance holidays, cars and luxuries.

Despite the rising burden of debt (or maybe because of!) our spending has been rising also at an average rate of 5.5% per year since 1995. However growth in income has not been rising by as much and has only increased by 4.9%. The difference is made up be households borrowing more money.

If you are having trouble paying back your debt then there is always the option of discussing this with your creditors and coming to some sort of agreement. Early detection of financial difficulties is the best way of dealing with the situation. Debt consolidation loans offer a good way of re-financing at a lower rate over a different term and one monthly payment is easier to manage than several.

If you have been unfairly charged for going over your overdraft limit you might want to think twice about writing to your bank and asking for your money back. Although you have the right to claim your money back and the charge is illegal, banks are starting to fight back. Banks are now threatening thousands of people that if they complain about the bank charges their bank accounts will be shut down.

What banks are doing is akin to bullying tactics and is in breach of industry guidelines which state that banks should not threaten customers with charges.

The problem of complaining about bank charges is especially dangerous for customers with large overdrafts. The charge comes from going over your overdraft limit but this inevitably means that you are more than likely heavily overdrawn and don’t have the financial means to pay back your overdraft. The bank then threatens you with closing your account and implicit in this threat is that you will have to pay back your entire overdraft back immediately.

This kind of behaviour is in blatant disregard of the Banking Code which clearly states that banks must treat customers fairly, particularly when they are in financial difficulty.

The whole banking charge fiasco is currently in the high court so we should all find out soon enough what is going to happen. If you are thinking of complaining about that £20 the bank charged you, be aware that you might have to fight.

Customers who have already had the plugged pulled on their overdrawn accounts or fear it may happen would be wisest to apply for a cheap loan. Most people are ignorant of the APR charged on their overdraft and would be able to clear their debt faster on the lower APR charged on a personal loan.

Despite negative media reports, it seems that in the UK banks offer cheaper services to customers and offer more assistance than almost any other country in the developed world. This is according to the British Bankers Association’s annual report.

Economic consultancy Oxera studied banking services from eleven countries.  And it turns out that the UK customer with a current account, an overdraft, personal loan and a credit card pays less services charges than bank customers in any of the other countries surveyed.

BBA Chief Executive Angela Knight CBE said: “The international comparisons make it clear: banking is good news for the UK. Besides contributing £50 billion to the economy and creating jobs for four million people, UK banks provide consumers with transparent, diverse services that are good value for money. These are services that consumers in many countries could only wish for.”

The BBA is continuing their efforts to reunite customers with the money in dormant bank accounts, in participation with the Government’s unclaimed assets program. It continues to partner with the Building Societies Association and National Savings & Investment, to make it easier for UK consumers to reclaim their money.

The BBA program has handled 40,000 claims, fielded 80,000 enquiries from their helpline, and had 149,000 visits to the dormant account pages of their website.

This far surpasses the efforts of other banks to take care of their customers.  Part of this is due to government intervention and regulations in the UK that are established to protect consumers from unfair practices.

Consumers are encouraged to take more control of their finances, and take measures to reclaim control over their loan debts and finances, instead of assuming that financial institutions will take care of them.

According to research by debt consultancy Thomas Charles, more than eight million adults are now in serious debt. This is a thirty percent increases over the past year, largely due to the rising interest rates. The 8.2 million people who are in serious debt account for 18 percent of the adult population. The average adult who is in serious debt has £10,000 or more of unsecured debt. Unsecured debt accounts for credit cards, overdrafts, loans and store cards. As many homeowners struggle to make ends meet with rising mortgage payments, the cost of unsecured debts seems to be rising.

The number of people who are struggling to meet debt repayments are has also increased. Around 25% of those with serious debt claim that they frequently have problems meeting their debt repayments – a nine percent increase from last year. A poll that was conducted shows that people who live in London are those that are most likely to be struggling with debt. Around forty percent people living in London have debt of 10,000 pounds or more with regular problems repaying their debt. In the south of England twenty percent suffer from serious debt and repayment problems while just eighteen percent in the Midlands and Wales suffer from the same dilemma. More and more, experts are advising consumers to watch their spending habits, to prepare a budget and pay off their credit cards, personal loans and other debts as quickly as possible. With the effect of the recent rate rises waiting to sink in, many homeowners are advised to start budgeting and cutting down on unnecessary expenses. For those who are in serious debt, it is advisable that they seek financial assistance.

New figures from Mintel reveal that Britons are in twice as much debt as they think they are.  When the subjects of the research were asked to estimate just how much money they thought they owed in unsecured debts such as credit cards, overdrafts and loans, the average UK adult replied that they thought they owed £5,251.  However according to figures from the Bank of England, the average adult in the UK owes an average of £10,300.  This goes to show that many Britons are underestimating the amount owed on their unsecured debts.

When those with mortgages where asked how much of their loan was outstanding many of the mortgage holders estimated that they had around £92,000 left on their loan to pay back before they owned their property outright.  Figures from the Bank of England show that the average cost owed on a mortgage is £95,000.  Those with mortgages were more aware of the amount owed on their mortgages than they were of their unsecured debts.  Those with mortgages are able to keep tabs on their mortgage, as it is such a large sum.  However, those with unsecured debts such as credit cards, overdrafts and personal loans may find it harder to keep tabs on credit cards, car loans or personal loans than it would be to keep an eye on one single mortgage payment.  Many people also place more importance on their mortgage as there is much more risk involved and more at stake should a payment be missed.  Although many Brits have a good grasp of their mortgage borrowing, many of them are underestimating the amount they owe on their unsecured debts.

If you trust your bank, it seems you are one of a small minority. A new survey has shown that three quarters of all customers in the UK do not trust their bank. Some of the fears that these customers have raised in the survey include experience of very poor service, rip-off charges for simple mistakes, a lack of respect from staff and from the institution as a whole, and fears that the security systems in place by the bank are inadequate.

One of the biggest reasons that customers’ relationship with their bank breaks down is due to the very high penalty charges that banks impose if you are late on a credit card repayment, or you allow your bank account to exceed its overdraft limit. Although the Office of Fair Trading has stated that such charges are illegal, the banks continue to levy them and there is little sign that they are going to let up, any time soon. The banks seem determined to delay and hinder any claims made by customers to reclaim the penalty charges.

Many banks are guilty of piling penalty on top of penalty, forcing customers deep into debt. Then the bank advises the customer to take out a personal loan to clear the debt. However, the customer is not encouraged to shop around for a cheap loan, but instead is offered the bank’s own high-interest product.

Identity theft is another fear that customers cite, and they are not satisfied that the banks’ own systems are as secure as they need to be, or that the banks take sufficient care with the personal information that they do have in their possession. Stories such as those that broke in March, of major banks simply dumping customers’ personal information in bins outside of branches have done very little to improve trust between banks and their customers.

Another finding that customers made clear was the fact that bank staff simply do not act as if they care about the customers. While many of the services that customers require from banks are extremely important, staff show no empathy and do not appear to take the requirements of bank customers seriously. They simply act as if they are paper pushers, and that nothing they do will make any difference to customers. Whatever the internal procedures of the bank may be, the least that bank staff can do is take customers’ fears and anxieties easily and explain the systems that are in place.

Hundreds of thousands of consumers are downloading letters from websites such as the BBC, Which? and campaign groups, as they work to reclaim excessive overdraft fees. Estimates claim that two million of these letters have been issued.

Analysts at the bank Credit Suisse estimate that the UK’s high street banks collectively earn £1.2bn each year in penalty charges on unauthorised overdraws.

“We wouldn’t like to divulge those sorts of numbers,” said a spokeswoman for Barclays, citing “commercial confidentiality”.
At Lloyds TSB, the response was very similar.  “We wouldn’t disclose that number,” the spokeswoman said.

The HSBC press office said: “We are not providing that data. It is a competition issue and is confidential.”

Despite the secrecy, Stuart Bernau, an executive director of the Nationwide, said his building society received 5,000 complaints a week.

“It is now considerably more at the banks,” said a well-informed industry observer.  “It is also operationally a major headache,” he added.

An estimated  £8.4m has been recovered so far by the Consumer Action Group (CAG) who has been recording their member’s successful claims.  This figure is higher than most believed when the campaign started almost one year ago.

“We are getting a real upsurge in the use of the site,” says Marc Gander of the CAG.

The Office of Fair Trading does not even know how many claims have been filed. Numbers may be released when its report is published in a month.

When asked why they have not asked how many claims were on file, a spokesman of the OFT inquiry team said: “They didn’t ask the question.”

“It is not necessary for us to know the numbers of complaints.

“The OFT has identified a potential problem and that it is serious enough for us to look into - that is what we are doing at this stage,” he said.

Whatever the figures, nearly every British citizen knows someone who has been dragged heavily in to debt by bank overdraft penalties - many of these bank victims were then advised to take out a high cost bank loan to cover their debts.  With so many cheap loans available online it is sad that so many bank clients fell for this further mis-selling despite already being victim of their bank’s greed.

There are many UK high street banks that are offering free overdrafts to students, some as much as two thousand pounds.  As good as this offer may seem to students, there is much debate and criticism from parents and debt groups as more and more students end up leaving University with such a high debt.

If you have recently graduated from University or if you are still a student, then you will be familiar with overdrafts.  Overdrafts are extremely popular with students as many of them need the interest free money to pay for their fees and expenses during their studies.  However, as more students are taking on the debt of an overdraft, there has been a lot of criticism from parents who feel that there is no need for students to take on debt, and that it is a bait-and-hook scheme that is leading students into a life of debt.  However, the fact is that overdrafts offer students an interest free and convenient way to borrow money.  If the students are aware of the responsibility they have taken on and manage to handle their finances, an overdraft can be extremely beneficial to students who would otherwise be struggling with their finances.  Students should also be made aware that although the overdraft is interest free, once they graduate the banks will start charging an interest on the amount, so if at all possible, students should pay off the debt before graduating to avoid paying additional amounts towards interest charges.

Accounts that charge monthly fees each month in return for additional benefits on your bank account is known as a packaged account or fee-paying current accounts.  The benefits that you receive in return for your monthly fee can include free annual travel insurance, discounts on package holidays, car breakdown coverage, and mobile phone insurance or free card protection.  These benefits typically cost around £10-£15 per month and can go as high as £25 per month.  However, before you sign on for a packaged account, you will want to make sure that the benefits you are paying for are in fact worth what you are paying for.

Majority of the time, customers are offered a packaged account that sounds like it will be beneficial and worth your money, however most people end up never using their benefits to the full and end up wasting their money.  Or, if you feel that you would use the benefits, often times there could be fine print in the contract explaining how you may not qualify for the benefits.  So it would do you good to read over the terms of the account and really ask yourself if the benefits are necessary and if you really will be able to take advantage of the benefits available to you.

If you bank offers you a card protection scheme, be wary, as the protection may not be necessary.  According to the Banking Code, you are only liable for a maximum of £50 on all unauthorised transactions that are made before the card issuer is made aware of any lost or stolen cards.  If you report the card lost or stolen straight away you will not be liable for any fraudulent charges.  The bank is required to cover any unauthorised purchases or charges once they are informed of a stolen card, so why pay card protection fees if you are already covered?

Before settling for a packaged account, read over the benefits to make sure that you are qualified to receive the benefits and if you are then ask yourself if you will really make use of the benefits.  If you know that you will make good use of the benefits, then you may want to consider opening a packaged, or fee-paying, account.  Otherwise consider an account with a good interest rate or offers cheap overdraft charges.