Halifax authorised overdrafts, better to have a personal loan?

realshannon

We have 2 accounts with Halifax - we are struggling with the new account charges as we use our authorised overdrafts every month, there just isnt, at the moment, any spare to even try and pay it off. When I spoke to someone at Halifax recently, they suggested taking a personal loan out to clear the overdrafts and that it would save us money. Although I think I am quite astute with money stuff I am not totally sure this is the best way to go. Feels like another noose around our necks. We are talking about just under £4000. He did say the typical rate was 9.9 which doesnt seem too bad but of course that isnt guaranteed.

any thoughts please? or a clever way of working it out! my gut feeling is stay as we are and eventually and hopefully we can whittle away at it, along with everything else! thank you:)

jambosans

Let's say for argument sake that you were to repay the overdrafts over 4 years at the current rate of charges. Over the course of 4 years you would pay £2920 in fees for an overdraft >£2500 (£2 per day). You mentioned having two accounts, this could be £4380 if you have one overdraft >£2500 (£2 per day) and one <£2500 (£1 per day). I'm going to exclude leap years (which will make a tiny difference) and the latter scenario.

So, you pay £2920 in fees on a £4000 overdraft over 4 years, if we were to calculate that as APR it would be in the region of 18.25% APR (someone correct me if my maths is wrong). To cover both the overdraft and fees you would need to pay £144.18 a month (on average and rounding up).

If we were not to exclude the two overdraft scenario, the APR would be 27.38% APR, with a monthly payment of £174.61 a month (on average and rounding up).


Now, those give you some rough figures to work with. A couple of things to bare in mind (which someone can confirm) I believe interest on loans compounds e.g. it's calculated monthly, so you pay pay interest on interest.


If you compare this to what Halifax offer, first off £4000 does not qualify for the lower typical rate of 9.9% APR (only available for loans between £7000 to £25000). The typical rate on £4000 over 48 months is 22.9% APR with a monthly repayment of £127.84. You can try the loan calculator yourself to confirm:-
http://www.halifax.co.uk/loans/loanshome.asp (right hand side, called "Quick Calculator")


So you've got two options: borrow or save.

• If you were to consider borrowing you would have to get a much better rate, unless you're in the two overdraft scenario detailed above (as the rate I've calculated above when applied to loans is normally reserved for those with a relatively poor credit history - i.e. higher risk).
• If you decide to save, open a savings account, and put away a set amount each month (in the region of the figures I've quoted). Or, cover the daily fees, and put away a set amount just to clear the overdraft (£83.34 per month would save enough to pay off in 4 years).

You can obviously tweak my figures by changing the term of repayment, but this gives you a rough idea, and some numbers for comparison.


Please Note: something is wrong with my math, the higher rate quoted by Halifax makes a lower monthly repayment than the lower rate I have calculated *scratches head*. I will correct once I figure out where I've gone wrong (any help would be much appreciated ).

rb10

I *think* that where you have gone wrong above is that your APR figure of 18.25% on the overdraft is based on the original outstanding balance of £4000 - actually, the balance would reduce over time, so the APR would be higher than this.

A clearer way to look at it is to come up with a time period over which you want to pay it off, so say for example you thought that you could do it in 4 years.

Then, by carrying on as you are and paying off the overdraft, you would start off by paying £2 per day, and get to the point where you pay £1 per day. You'd probably pay around £2000-£2500 in fees.

If you paid it off using the loan that Jambosans mentioned above, then you'd be paying £2136 in interest.

So there is very little difference between the two.

Remember however that Halifax can ask for the overdraft back, in full, at any time that they choose. Get a loan instead, and this is guaranteed, provided that you don't fall behind with repayments.

realshannon

thanks very much, thats sorta where I was with this - in about 3 weeks we have some money coming thro (yippee) so I am going to look at the whole o/s debt situation and see which bits are the best to get rid of. I have just asked Halifax if they could give us a temporary increase to our overdraft until this money comes through but it was a firm No. Makes you feel about an inch high. Never mind, hopefully we will have the last laugh when we eventually finish restoring our house which will be very soon and we can pick and choose banks - thanks again for your time and advice, very much appreciated - confirms that I was along the right track - sometimes you get stuck in a fog of maths