Student overdraft due to be repaid... EEK!

jimjiber

I graduated a year ago and have been waiting for this letter to arrive.

I have (had) a Co-Operative Bank student account which I took out to help me get through uni thanks to the free £2000 overdraft. It definitely came in very useful.

However, I just got the letter to say that as I have been a graduate for a year now, the overdraft will no longer be a free student one but instead a standard current account overdraft. I assume this means as of next month I will start paying 18.9% APR on the balance (I am about £20 shy of the £2000 limit).

Since uni I have started my own design business, which is just starting to take off in earnest, although my business partner and I are yet to take a wage.

I don't know how I can pay off this overdraft and am concerned about spiralling debt caused by charges/interest/fines.

Would it be more economical to take out a cheap loan to pay it off? Are there such things as cheap loans these days? Or maybe a credit card?

DCFC79

Yes a loan or a credit card might be an option but its dependant if you could get a loan/credit card with the limit you need and if the bank would allow the 2k£ to be repaid with either method.

When you opened the account were you told its a student account for a set period of time ?

ace_85

I would propose that getting one loan to pay off what is effectively another one probably isn't a great idea, financially speaking. I was put in a similar position as you a few years back, albeit for a slightly lower total; my bank decided to call in my maxed-out £1600 student overdraft within a fortnight or so. It was totally outside my capacity to pay off in a lump sum, so I contacted them and they allowed me to go on a payment schedule that knocked £160 off of the bottom of the overdraft every month for 10 months, until it was paid off in full. There was no charge or punishment for this arrangement, and the only negative factor was the slightly embarrassing phonecall to the 'collections' department, who were actually surprisingly pleasant.

Any chance you could just contact your bank and see if they'll set up a similar contract for you?

PasturesNew

Interest will be about £30/month if you have to keep it as it is.

£2000 at an APR of 18.9% is £378/year interest.

PeacefulWaters

jimjiber wrote: »

I graduated a year ago and have been waiting for this letter to arrive.

I have (had) a Co-Operative Bank student account which I took out to help me get through uni thanks to the free £2000 overdraft. It definitely came in very useful.

However, I just got the letter to say that as I have been a graduate for a year now, the overdraft will no longer be a free student one but instead a standard current account overdraft. I assume this means as of next month I will start paying 18.9% APR on the balance (I am about £20 shy of the £2000 limit).

Since uni I have started my own design business, which is just starting to take off in earnest, although my business partner and I are yet to take a wage.

I don't know how I can pay off this overdraft and am concerned about spiralling debt caused by charges/interest/fines.

Would it be more economical to take out a cheap loan to pay it off? Are there such things as cheap loans these days? Or maybe a credit card?

Self employed for 5 minutes = no loan.

Even if you could get a loan your interest rate would probably be higher than 18.9%. And monthly payments will probably be near £100 a month for a 2 year term. If you think you can afford a loan why can't you afford to maintain the overdraft?

Stick with the overdraft but start reducing the debt. Interest will be around £1 a day. If you reduce your debt by £40 a month or more you'll start moving in the right direction, although interest will swallow up most of that. I'd suggest £100 a month would be a more appropriate debt reduction. That way you'll be debt free within two years.

jimjiber

PeacefulWaters wrote: »

If you think you can afford a loan why can't you afford to maintain the overdraft?

I figured that I could get a loan at less than 18.9%, or a credit card at 0% for a year or two. Surely that makes more sense than paying the interest on the overdraft?

jimjiber

ace_85 wrote: »

I would propose that getting one loan to pay off what is effectively another one probably isn't a great idea, financially speaking. I was put in a similar position as you a few years back, albeit for a slightly lower total; my bank decided to call in my maxed-out £1600 student overdraft within a fortnight or so. It was totally outside my capacity to pay off in a lump sum, so I contacted them and they allowed me to go on a payment schedule that knocked £160 off of the bottom of the overdraft every month for 10 months, until it was paid off in full. There was no charge or punishment for this arrangement, and the only negative factor was the slightly embarrassing phonecall to the 'collections' department, who were actually surprisingly pleasant.

Any chance you could just contact your bank and see if they'll set up a similar contract for you?

Surely moving the debt from an 18.9% APR to something considerably lower makes financial sense? Of course this is subject to me being accepted.

Thrugelmir

PeacefulWaters wrote: »

Self employed for 5 minutes = no loan.

The bank could call in the overdraft at will. So being proactive by requesting that the facility be converted into a loan should be acceptable.

SuperHan

jimjiber wrote: »

I figured that I could get a loan at less than 18.9%, or a credit card at 0% for a year or two. Surely that makes more sense than paying the interest on the overdraft?

With no income and already in £2k debt, you are highly unlikely to get a credit card offering 0% on cash advances for £2k (I earn £22k in a household earning £55k, and the only cash advance card I have been offered is for £1,700. This wasn't what I was specifically looking for, but it may give you an indicator of what you're likely to be able to get). A loan at less than 18.9% will also be difficult for someone with little credit history. How do you propose you will make the loan payments without a wage? What is to stop you having the loan AND slipping back in to your overdraft, unable to pay either?

Speaking to the bank would be the best option.

ravingandsaving

It might be worth speaking to your bank and let them know about your new business and financial position, to see if they can help you out. One of my friends got into a terrible mess at uni and the bank sorted out an affordable repayment plan for her.