Consumers suffer consequences of using overdraft banking facility

Tue, 04 Apr 2006

Consumers should think twice before using their overdraft as a means of borrowing, warns a financial services expert.

More and more consumers are turning to their overdraft as a regular method of financing purchases rather than as an emergency option and it can have costly repercussions, according to the financial services comparison website uSwitch.

Nick White from uSwitch warns people tempted to use the unauthorised overdraft banking facility that they can face a multitude of high charges.

"There is a combination of interest rates and daily charges," he warned.

"If you look that banks charge almost 30 per cent if you go into unauthorised overdraft it seems very high," he added.

He advises consumers to keep a close eye on their finances so they know exactly what they are being charged so there are no hidden surprises. He also suggests that cheaper financing products are available elsewhere.

His comments follow the recent condemnation of banking chains by the industry watchdog Which?, who have heavily criticised banks for charging what they deem as excessively high penalties for consumers that exceed their overdraft limit.

The charges have been accused of being an "easy money-spinner for banks".

The watchdog argues that the charges should be more fairly priced, reflecting the actual effort and costs involved in dealing with an unauthorised use of an overdraft banking facility.

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