Poulicnà banka HIGH is making a fundamental change in its overdrafts, which has an impact on millions of customers.
Lloyds Banking Group, which runs Lloyds Bank, Halifax and Bank of Scotland, is shaking up the way it charges for negotiated overdrafts.
An overdraft allows you to spend money or withdraw cash if your balance falls below £0, but you may be charged interest on anything you spend over this limit.
The current Lloyds interest rate is usually 39.9%, although some customers pay less – those with a Club Lloyds account pay 27.5%.
However, under the new system, some customers will be charged 49.9% interest on the amount borrowed from August – an increase of 10 percentage points.
It means Lloyds Banking Group will charge the highest overdraft interest rate of any major bank.
Not all customers will see an increase in interest rates. Some will stay at the same rate and others will see it drop to 19.9% ​​or 29.9%.
Meanwhile, the 27.5% rate on Club Lloyds, an account that comes with a £3-a-month fee, will be scrapped entirely.
Andrew Hagger, personal finance expert at MoneyComms, said the 49.9% interest charge was more often associated with subprime credit card lenders and for people with bad credit.
Lloyds customers do not have to pay fees for overdrafts that are not pre-arranged with your bank.
Delving into an unsettled overdraft can be particularly bad for your credit rating, as it shows lenders that you’re struggling to maintain your finances.
A number of current accounts are affected by the recent change announced by Lloyds.
This is the full list:
Bank of Scotland:
- Platinum account
- Silver bill
- Classic account
Lloyds:
- Classic account
- Club Lloyds account
- Silver bill
- Club Lloyds Silver Account
- Club Lloyds Platinum Account
Halifax:
- Ultimate Reward Current Account
- Reward on current account
- Current account
Llloyds, which has 27 million UK customers, said the rate charged to individual customers would depend on information from credit reference agencies and how they use their accounts.
All customers who wish to increase their charges will be given 60 days’ notice before they are introduced.
Anyone whose interest rate is going down will get seven days’ notice.
Any increase will be limited to 7.4 percentage points above the customer’s current rate.
A spokesman for Lloyds Banking Group said: “We are writing to our customers to inform them that we are introducing new interest rate levels on our overdrafts.
APR: What it is and how it works
The APR – or annual percentage rate – refers to the total cost of your loan per year.
The APR is based on the interest rate when purchasing the card plus standard fees.
This rate does not include additional fees such as cash transaction or transfer fees.
APR can help you compare credit products, such as loans or credit cards, on a like-for-like basis.
If you’re looking for a loan on, say, a price comparison site, the different loan options are often sorted by a representative APR.
When a loan is advertised with a “representative APR”, it means that at least 51% of customers must receive a rate that is equal to or lower than the representative APR.
It’s easy to assume that the lender with the lowest representative APR you advertise will give you the best rate.
However, when you apply, you are likely to receive a personal APR based on your circumstances.
It can be the same, higher or lower than the representative APR.
“The changes mean many will continue to pay the same or less than today, while some may see an increase.”
It comes after millions of credit card customers were urged to review their accounts with lenders who have hiked interest charges.
An investigation by The Sun last month found some providers had increased the interest charged on their cards by 11% over the past 10 years.
Lenders have been raising mortgage and credit card rates in recent months after the Bank of England hiked base rates.
The prime rate is currently 5.25%.
What you can do if you are a Lloyds customer
If you’re a Lloyds Banking Group customer and worried about the potential impact of rising overdraft fees, you have options.
The first and most obvious way to avoid hikes is to opt out of the overdraft option.
Not only do you get hit with added fees when you opt for an overdraft, but they can be difficult to get out of.
Another option is to switch to a current account with a bank or building society with lower interest from an overdraft.
Not only that, but a number of banks will pay you free cash for switching to one of their checking accounts.
Just make the switch using the Current Account Switching Service (CASS).
Andrew from Moneycomms added: “Most banks now charge between 35% and 40% for agreed overdrafts, but depending on how much you borrow, First Direct may be an option worth considering, as the first £250 of any agreed overdraft are interest-free.”
Other banks that offer competitive interest charges for negotiated overdrafts include Starling and Monzo, with rates starting at 15% depending on your credit status.
Another option, according to Andrew, is a credit card – though beware of further debt.
While the interest on them is usually lower than an overdraft, and sometimes even nothing at all for a set period, they often have much higher spending limits.
Credit card needs to know
Using your credit card inefficiently can wreak havoc on your finances and your credit score.
If you don’t keep up with paying or defaulting on your debt, you’ll likely end up with a black mark on your credit record, which could affect your ability to get a credit card, loan or mortgage in the future.
It is important not to get caught up in overspending.
You should always clear your entire balance as soon as possible.
If you have a bad credit score, don’t count on getting approved for the card or getting the 0% offer you were hoping for.
Card providers only have to give the advertised rate to 51% of applicants, so you could end up paying a higher interest rate than you bargained for.
If you have a bad credit history, you are less likely to get the best rates.
And if you’re looking for a new credit card, don’t apply for lottery tickets all at once.
After your 0% period ends, lenders can charge up to 40% interest, so if you haven’t fully repaid the debt by then, try moving the debt onto another 0% deal.
He said: “Consider 0% credit card purchases and instead put what you currently spend on overdraft onto your credit card – paying off your statement balance in full means you’ll pay no interest.
“Even if you can’t pay off the card in full, most cards currently charge around 24.9% APR on purchases, so much less than your potential Lloyds overdraft bill.”
The exact credit card rate you get will vary depending on the provider and your credit history.
You can find the best deals on credit card purchases by using comparison sites such as Go Compare and Compare the Market.
Before you apply, use an eligibility check to see how likely you are to be accepted without damaging your credit score.
Borrowing through credit cards and overdrafts can be useful to cover unexpected expenses. But if you use them to pay your day-to-day bills, it can lead you into debt.
If you can’t afford to pay off the debt you have, avoid taking on more.
It’s always vital to ask yourself whether you really need to borrow before taking out a new credit card, personal loan or overdraft.
If you need cash quickly in an emergency, then it is useful to have savings to fall back on, although this is not always possible.
A credit union is worth considering. They are a much cheaper alternative to payday loans and some can even get you cash the same day.
The interest rate offered on these loans is significantly lower than on a credit card or overdraft.
Before borrowing cash, do your research and find the cheapest option for you.
Also remember that if you’re struggling to pay your bills and have fallen into debt, there are several free helplines you can call for advice.
- State Debt Line – 0808 808 4000
- Advice for citizens – 0800 144 8848
- Debt charity StepChange – 0800 138 1111
Do you have a money problem that needs to be solved? Contact us by email at money-sm@news.co.uk.
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