Save money by clearing your overdraft with a lower rate loan
- Rates start from 2.9% APR
- Find personal loans from £500 to £25,000
- Search with no impact on your credit score
Representative 15.9% APR (Variable)
Representative example: If you borrow £7,500 over 5 years at a Representative APR of 15.9% and an annual rate of 15.9% (fixed) you would pay £177.82 per month. Total charge for credit will be £3,169.20. Total amount repayable is £10,669.20. Minimum repayment period is 12 months. The %APR rate you will be offered is dependent on your personal circumstances. Freedom Finance is a leading credit broker and not a lender.
What the new rules mean for you
From 6th April 2020, all overdraft providers will change the way they charge you for using overdrafts. Instead of paying a fixed fee, you’ll now pay interest on the amount you owe. This is the case for both arranged and unarranged overdraft users.
Most banks and building societies are raising their overdraft fees to 39.9% EAR.
Want to find out if you’d be better off using a loan to clear your overdraft? Check now without affecting your credit score.
What you need to know
Why are overdrafts changing?
The change is designed to protect vulnerable customers who regularly dip into unplanned overdrafts and get charged high fixed rate fees. Instead of being charged a fixed fee for going overdrawn, they’ll only pay interest on the amount they’re overdrawn by.
The new system should also make it easier for customers to compare overdrafts with other borrowing products, such as loans or credit cards.
How could I benefit from a debt consolidation loan?
If you’re going to be paying more interest in the new tax year, you could pay off your overdraft using a debt consolidation loan with a lower APR. Although you’ll need to factor the repayments into your monthly outgoings, not only will you reduce the amount interest you’ll pay, but you’ll also clear your debt by the end of your loan term.
What’s the difference between EAR and APR?
Right, this one can be a bit tricky to get your head around.
APR stands for Annual Percentage Rate. It tells you the amount of interest you’ll pay each year on your borrowing, as well as taking into account any additional fees or charges.
EAR (or EAPR) stands for Effective Annual Percentage Rate. It tells you the amount of interest you’ll pay on your borrowing each year, but it also takes into account compound interest.
Compound interest is the amount of interest that builds up over time. With some types of borrowing, such as overdrafts, you’ll pay interest on the entire amount you owe – including the additional interest that you’ve built up. An EAR takes this into account when indicating the cost of your borrowing. However, it doesn’t factor in any additional fees or charges.
Where can I get more information?
Need a little more detail? No problem. We’ve whipped up a handy blog to help you get to grips with the latest changes. Get stuck into to our more detailed run through, how to avoid paying 39.9% on your overdraft.