Overdraft Interest

Bern24

I have an overdraft of £1800 and the interest is changing to 19.89% ear plus a £6 usage fee.

I used the natwest 'calculator' and it says that my interest will be approximately £29 ish and then the £6 fee.

It however says that if you use an 'arranged or unarranged overdraft over two charging periods then the costs may be different to those shown'.

Does this mean my interest rate will rise? What will it mean for how I pay?

Thanks!

polymaff

Check out if what they mean is that if the overdraft spreads over the monthly anniversary of the account it will be treated as two overdrafts - each with its own interest rate and usage fee.

Bern24

do you mean two overdrafts as in arranged and unarranged? It just says if I stay within my limits they are usage fees and interest.

I went into the bank and they said as long as I was depositing funds I would just pay interest and usage fee! I just wondered if it meant that the interest rate would rise and how I could find information on this

grumbler

Bern24 wrote: »

I have an overdraft of £1800 and the interest is changing to 19.89% ear plus a £6 usage fee.

I used the natwest 'calculator' and it says that my interest will be approximately £29 ish and then the £6 fee.

It however says that if you use an 'arranged or unarranged overdraft over two charging periods then the costs may be different to those shown'.

Does this mean my interest rate will rise? What will it mean for how I pay?

Unlike APR, EAR when calculated takes the monthly fee in the account and depends on various assumptions. As a result, it is very confusing despite being supposed to be simpler to understand than APR+fees. As they say, hell is paved with good intentions (of our beloved regulators in this case).

I guess what they mean is that if you borrow some amount for 30 days within one charging period it will be cheaper than if 30 days overlap two consecutive charging periods. In the fist case you pay £6 once; in the second case - twice. The interest will be the same.

polymaff

Bern24 wrote: »

do you mean two overdrafts as in arranged and unarranged? It just says if I stay within my limits they are usage fees and interest.

No, I'm just offering an interpretation of the message you quote off, I assume:

http://personal.natwest.com/personal/current-accounts/overdrafts/overdraft-calculator.html

- based upon the following link on that page:


"Usage Fee Assumption
If you use an Arranged or Unarranged Overdraft over two charging periods, your costs may be higher than those shown. "


Find out more about cost assumptions & charging periods

Bern24

So is the idea if I don't pay off the debt each month then my fees will be higher?

grumbler

It's not a rocket science, is it?

Each 'charging period' you pay £6 plus ~1.5% interest. The interest depends on the balance and is calculated daily (~0.05% per day).
If you permanently remain overdrawn the total amount you pay depends on the balance only as you pay the fee every month regardless.
If you borrow for a short time, say, a month, you can be charged £6 once or twice, depending on your 'luck' (plus the interest).

polymaff

Bern24 wrote: »

So is the idea if I don't pay off the debt each month then my fees will be higher?

It is a monthly - not a one-off fee. They also reserve the right to change the interest rate, I imagine.

Good advice - don't use an overdraft except in very short-term, emergency, circumstances.