Guarantor loans: A cheaper alternative to your overdraft?

Last post: Nov 16, 2017

With some banks now charging up to an eye-watering 81% interest on arranged overdrafts, opting for a guarantor loan to cover emergency expenses could be the more affordable option. Here's why...

 If you've accidentally toppled over into your overdraft over the past year, you'll almost certainly have been shocked by just how expensive overdraft use has become. Over the past few years, the cost of both unarranged and arrange overdrafts has been creeping steadily upwards, as high street banks seek to squeeze more from their customers.

Sky high overdrafts

Extortionate arranged overdraft interest rates of 81% are not unheard of and, although these eye-watering costs are at the more nightmarish end of the spectrum, slipping into your overdraft is now far more expensive than many of us realise.

After outcry over the summer of 2017, some high street banks have taken steps to reduce rates and make fees fairer, however, costs can still be a nasty shock – and not every company has tackled their steep fees.

Change for the worse?

Meanwhile, some banks who have made changes to how they charge overdraft users have switched to a system which hits those using small amounts over a short period square in the pocket. At Natwest or RBS, for instance, select account holders who are overdrawn by £500 for seven days will face a £6 fee plus an interest rate of 19.89%. That's around £105.

Consider the alternatives

With such steep fees to contend with, many individuals with a need for short term finance may be better placed seeking alternative arrangements. Many unsecured and guarantor loans are available with lower interest rates and fees over short periods.

Although doing your homework to understand each rate and fee, while also doing your sums, is essential, many people with short term finance needs may find that these alternative products work out far cheaper than venturing into their overdraft – even if a little more legwork is required.

Could a guarantor loan save you money compared to dipping into your overdraft? Find out more about how guarantor loans work and talk to our finance experts to learn more.