Overdraft vs Loan

diz79

Hi

Ive been reading through the forums and it seems the advice is not to get a loan to clear debt as this could lead to more debt.

Ive looked at my figures and I currently have 2 overdrafts at £5000. Barclays £3000 Natwest £2000, Im paying roughly £60 a month in interest on both. This is costing me £720 a year.

Over 5 years I can get a loan from natwest of £5000 at 11.9 % . Meaning ill pay £109 a month total pay back is £6500ish.

If I dont get this ill continue to pay back just £3010 in interest to these banks in 5 years, with no clearence.

Can someone help please, I did look at stooshing but, was declined a credit card.

Thanks in advance

mmy

Hi, there, had the same problem as you with overdrafts, and it really scared me because every month, my salary cleared the overdraft and within a week I was right back in it. Many people will tell you not to get a loan to clear and overdraft, and I know their reasoning is sound and based on good experience. All I can say is, that a loan has worked miracles for me. I don't have credit cards [well one, but I'm paying that off and I cut up the card over a year ago] so my overdraft debt was the main one. Once the loan cleared it, I feel able to manage my money much better with all DDs coming out the day after pay day, and an envelope system for weekly accounting. Of course, a loan is someone else's money just like an overdraft is, but I was always terrified that the bank could call in the overdraft, whereas that won't happen with the loan unless I default [which I won't, I never miss a payment.] Just my view, but this solution has worked well for me and I am no longer so stressed.
Best of luck with whatever you decide.

Mrs_A_2

I got a loan to cover my overdraft as the interest rates worked out better. If it makes financial sense then do it - but only get the loan for what you need, not extra, and close your overdraft immediately.

JTB19

I have been a customer with Barclays for over twenty five years.
Six years ago a tragedy struck my family and my personal circumstances changed overnight and I was forced to obtain an overdraft for £5000.
I have spent the last five years repaying debts of one kind or another and have on two occasions requested if Barclays would convert my overdraft into a structured loan facility, both times they refused.
I recently raised this issue again with a local branch manager who gave me the impression that both he and Barclays sympathised with my situation and arranged for me to speak with a financial advisor.
The financial advisor acknowledged that the interest alone charged on this overdraft facility has been in excess of £2500, she said Barclays would be prepared to offer me a personal loan to pay off this overdraft over a twenty four month period at an APR of 17.9%. I declined this offer on grounds of principle.

I have seen the light, I am not a valued long standing customer, I am just another wallet that has the potential for money to be extracted from.

I know that one day my financial situation will change, but I will never forget the way Barclays have treated me.

nicp60

diz79 wrote: »

Hi

Ive been reading through the forums and it seems the advice is not to get a loan to clear debt as this could lead to more debt.

Ive looked at my figures and I currently have 2 overdrafts at £5000. Barclays £3000 Natwest £2000, Im paying roughly £60 a month in interest on both. This is costing me £720 a year.

Over 5 years I can get a loan from natwest of £5000 at 11.9 % . Meaning ill pay £109 a month total pay back is £6500ish.

If I dont get this ill continue to pay back just £3010 in interest to these banks in 5 years, with no clearence.

Can someone help please, I did look at stooshing but, was declined a credit card.

Thanks in advance

A couple of points to note - firstly consolidating debt rarely works unless you identify the reason that you're in debt in the first place. - Why are you overspending?

Secondly, have you actually applied for the loan with NatWest? The fact you were declined a credit card would suggest that you probably won't get a loan.

Thirdly, rule of thumb to most lenders is that your debt should be 50% or less of your income. It does not matter if you intend to consolidate and keep the same amount of debt, you will have access to double the amount of credit as you have now.
For your level of credit, you'd need to be earning around 20k unless you have other debt too - you'll have to add that on.

Although it can work, I would advise against consolidating your debt and focus on cutting back on your monthly spending and throwing it all at the overdrafts. I know that overdrafts are expensive, but unless you actually get approved for the loan, then you're stuck with those interest rates I'm afraid.

diz79

Wow thanks everyone for such quick an consise replies. At the moment my money goes into my Natwest account and ive started paying £100 a month to my barclays account. Now if Im manaing to do this surely an exra £9 would not hurt?

Im currently back at my parents for a short while, while I look for a place so my rent is only £200, I am earning over £25000 so should be ok but my rent will prob increase to £600 soon. One question I have with being at my parents would that increase my chances of getting a loan approved? As it will be at their address?

Thanks again everyone

diz79

Any more help with this at all guys?

bargainbetty

Living at your parents address won't make much difference. It is not linked to your parents, and they have no bearing on it.

If you are staying with them and saving £400 per month, why don't you use this to pay down the O/D, and once each one has cleared a marker point (i.e Barclays down to £2k and NatWest down to £1.5k) you can call the banks and ask them to reduce your overdrafts so you can't run them up again.

Frankly, before you think about using credit to refinance your existing debt, you really need to look at why you reached this point, and get your monthly expenditure in order.

Good luck