Offered a Natwest loan to get out of perpetual overdraft

annetheman

Natwest have offered to discuss a loan to get out of overdraft for me.
I have a loan with them for £1,500 of which I pay £130 per month and should be finished paying off at the end of 2020 (£50 interest per month). I have always paid on time in full the usual monthly cost for this.

At the same time, every month I get paid, my account balance only just goes into the black by a few hundred pounds - by the end of the month I'm over £1500 in my overdraft again (bills, rent, etc). I've been living in my overdraft for years.

My monthly overdraft charge is 0% (student account, don't ask!) but it goes to £30 if I go over the arranged £2000 overdraft, which I never do.

They want to offer me another loan to get out of my overdraft and stay in the black every time I get paid. I live within my pay (means) so I don't think I would ever go into the overdraft if I could pay the full £1,500 to get out of it with a loan. However, I'm not sure this is good value as my current overdraft is 0%....?

Is it worth taking this as I think they might change my student account one day and then I'll get hit with lots of charges - can they do this or should I just stay under the radar on a student account?

Also , I found out I'm on emergency income tax so I'm expecting approx. £1,800 rebate from the HMRC so should I postpone the meeting with Natwest until this rebate reaches me?

Many thanks for your help.

agrinnall

If you are really on emergency tax then it's unlikely you'll get as much back as you seem to think, the emergency tax code is the same as the standard personal allowance, so to get £1800 back your personal allowance would need to be in the region of £20,000 - it's possible but would be rather unusual. If you tell use exactly what your tax code is we can tell you if it's likely you have overpaid.

Willing2Learn

annetheman wrote: »

... I live within my pay (means) so I don't think I would ever go into the overdraft if I could pay the full £1,500 to get out of it with a loan. However, I'm not sure this is good value as my current overdraft is 0%....?

Is it worth taking this as I think they might change my student account one day and then I'll get hit with lots of charges - can they do this or should I just stay under the radar on a student account?

You are not living within your means as you are perpetually in debt and using the overdraft. Regardless of any HMRC rebate, you should be looking to address that debt. Having a cheap loan could help you to achieve that goal...as long as you stick to a monthly budget and do not overspend...

Flobberchops

If your overdraft is really 0% then it would make sense for you to keep using that rather than adding to loan debt. But, what is your student status? Are you still studying, or a graduate? If it turns out you shouldn't qualify and that the bank could potentially start charging you overdraft fees tomorrow (or worse, ask for it to be repaid immediately) then you shouldn't rely on that.

FrugalShaz

I managed to pay off my student free overdraft by reducing my overdraft by £50 or £100 per month, depending on how much overtime I did. A loan will cost you in the long run, as it's 0% you might as well reduce it a little each month.

YorkshireBoy

If you can't find, say, £100 a month to put towards reducing the overdraft balance, where will you find, say, £100 a month to service the loan?

MovingForwards

If you have a couple of hundred in the black when you get paid, then use all your overdraft that month you are living outside your means.

Where is all your money going? Is it on bills/food/transport or is it also including take aways, clothes/shoes, taxis, rounds in the pub etc.

Until you know exactly where your money is going you are going to struggle to get on top of everything and stay in the black.

Terry_Towelling

If your outgoings are the same as your income you are living within your means but you have a cash-flow issue caused by living beyond your means at some point in the past.

The suggestion that you use a loan is, in some respects, ludicrous because that will cost you more money in interest and you'd still have to find the extra cash to service it (as stated by YorkshireBoy). However, it will make your affairs look more normalised and you'd have to pay the loan because I suspect your overdraft facility will be curtailed as soon as you take the loan and you would get clobbered for not paying it.

The best method would be to nail your spending to the floor for a few months - don't go out, don't drink, don't smoke, drive more economically - just think about what you are spending and how to not spend it in the first place (if possible).

Add to that your possible tax rebate and you're possibly in the clear. Do you know how much income (gross) you will have received by 5/4/19 and how much tax you will have paid if it keeps going out at the rate it currently is? You only have to pay 20% of income in excess of £11850 earned in this tax year, so you should be able to work out where you are on the scale and how much rebate you should get.

One complication may be any student loan repayment that is rolled into the tax calculation but I can't work that out because I don't know which 'system' you are in or whether you will earn enough to start repaying it.

pinkdalek

Overdrafts in reality are short term debt, being in them all the time does not help your credit rating. A loan at least has an end date and you will know it will be paid off in due course, there is nothing stopping you paying your cheque off any debts outstanding.
Research into credit cards that offer 0% money transfers? Some may let you in effect do a balance transfer from your credit card to pay off the overdraft.
At some point your overdraft is not going to be 0% and if you have had this for some time my concern is why have you not been chipping away at it whilst it has been 0%.

It's your choice.

lewishardwick

Your current loan will have cost you over £3,000 by the end of 2020.

Given Nat West want to discuss you financial situation to get you out of your overdraft suggests they're concerned about your finances.

Any loan you take out is likely to be an even worse deal than your current loan.

You really need to sit down and plan your spending.

As mentioned, if you're living within your means, you'll have to reduce it to ensure you start to reduce you overdraft.

Years ago I took out a loan to pay off an overdraft, I'm still dealing with it now.

Plan carefully. The bank is not your friend!

pmduk

So they want to offer you a chargeable loan to get out of an interest-free overdraft? Who is helping whom here?