Tame your finances by diffusing your overdraft.
Consolidate high-interest overdraft debts with LoanTube.
What exactly is an overdraft?
An overdraft allows you to borrow money from the bank through a current account. Essentially, if your account balance drops below £0 after a transaction, you are in an overdraft with the bank. An overdraft that has been arranged with the bank on demand, or is pre-set by the bank, is called an arranged overdraft.
Your overdraft limit will normally be set by the bank or the lender if you’re eligible for an arranged overdraft. However, it is important to remember that the lender will impose interest for using this facility. In the case of arranged overdrafts, there’s a zero-interest window in the initial months of repayment, but the interest rates sky-rocket as soon as this window expires.
On the contrary, in an unarranged overdraft, you spend more than your account balance without officially arranging an overdraft first. You could also dip into an unarranged overdraft if you spend above your limit in an arranged overdraft. An unarranged overdraft could incur a high-interest rate and potentially harm your credit score. Therefore, if you plan on using an overdraft, it would be best to keep your lender informed.
Is it a good idea to use debt consolidation loans for overdraft debt?
Debt consolidation loans are one of the most convenient and efficient ways of consolidating high-interest debt that one may accrue from credit cards and bank overdrafts. Through this method, you essentially combine all your ongoing high-interest debts into a single loan. This way, you’re only left with one, potentially, low-interest debt to pay off.
Unsecured debt consolidation loans serve as an excellent opportunity to organize your finances without putting up any collateral. But to truly reap the benefits of debt consolidation, you may want to borrow a loan with lower interest rates. Your credit score and income stability can increase your chances of obtaining a low-interest debt consolidation loan. A better credit score implies a lower risk proposition for lenders.
With LoanTube, you can borrow from £1,000 – £35,000 over 12-84 months without any collateral security, sufficient to settle all your existing debts. Whether you’re a homeowner or a tenant, LoanTube can help you get out of debt tangle with ease.
How do debt consolidation loans work?
When you choose a debt consolidation loan offer, the lender will put your profile through a hard credit enquiry to assess your repayment ability. Once you qualify the credit check and complete contractual formalities with the lender, they will transfer the money directly into your bank account. You can then use this lump sum to settle your ongoing high-interest debts. After your debts have been paid off, you’ll only be left with a single loan to repay, allowing you to budget and track your repayments effortlessly.
What if I don’t have a good credit score?
Lenders use your credit score to assess your repayment ability and risk when lending you money, so it’s crucial in the loaning process. You can get better interest rates with a credit file with a good credit history. However, low credit scores can make it challenging to obtain debt consolidation loans at lower interest rates. As a result, you may still be eligible for debt consolidation loans with a low credit score. Still, you may not qualify for competitive interest rates.
Why consolidate overdraft debt?
Here’s why it makes sense to pay off your overdraft debt using debt consolidation loans:
What to consider before borrowing a debt consolidation loan?
Borrowing an unsecured debt consolidation loan is easier if you know exactly how much money you need to settle your ongoing debts. Plus, since the loan is unsecured, you will not be required to pledge any assets to secure it. But even unsecured loans have profound repayment implications. Consider the following before making your final call:
Assessing your ability to repay a loan should be the first step before applying for one. It is essential that you only borrow an amount you can repay within the mutually-agreed repayment period.
Long-term loans demand more commitment. You may be able to lower your monthly payments with a long term loan, but you may end up paying more interest over time. Determine the correct term for your financial situation.
You might lose a few points from your credit score if you miss a payment. The consequences of multiple missed payments can lead to a default, which may be followed by a County Court Judgment (CCJ) affecting your credit score severely. A CCJ stays on your credit report for up to 6 years, hampering your chances of securing credit in the future. Thus, you must pay off your debts on time and maintain healthy credit.
Staying on top of your repayments will be easier if you have a contingency plan for dealing with emergencies. Make an informed decision before borrowing a debt consolidation loan. Suppose the interest rate on your debt consolidation loan is more significant than all of your debts combined. In that case, it may not be worthwhile.
Will I incur an early repayment charge? Some lenders levy additional charges on early repayment or settlement of loans. This detail is usually mentioned in the fine print of your loan agreement. When you borrow a debt consolidation loan to pay off your debts, you are essentially settling your debts once and for all. Suppose your lender imposes an early settlement fee that costs you more overall. In that case, it might defeat the whole purpose of consolidating your debts. Thus, you must ensure that none of your debts come with an early repayment or settlement fee.
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An overdraft, arranged or unarranged, are both forms of debt. And, like any other loan, you have to settle it within the defined repayment period. Here’s how an overdraft can impact your credit score.
Arranged overdraft: An arranged overdraft is considered a debt when it comes to your credit report. Therefore, it is crucial to make timely repayments toward your overdraft to protect your credit score from any damage. Additionally, you will need to ensure that you don’t exceed the limit of arranged overdrafts set by your bank or lender. Spending above your overdraft limit can lower your credit score. It may appear as if you’re struggling with credit to the lender. Thus, an arranged overdraft can benefit your credit if you use it responsibly. However, missing repayments and exploiting the overdraft can be detrimental to your credit score.
Unarranged overdraft: An unarranged or unauthorized overdraft is one that your bank or lender does not approve. This type of overdraft has a highly negative impact on your credit. Using it regularly could severely affect your chances of securing credit. Therefore, it is vital to repay an unauthorized overdraft as early as possible. It is always better to sign up for an arranged overdraft instead.
A mortgage is a crucial decision for lenders – and so, they will put your documents under thorough scrutiny. Now, when assessing your finances, if they see that you frequently dip into an unauthorized overdraft, it may appear as if your financial stability is askew. Against this backdrop, you may have a difficult time obtaining a mortgage. Therefore, it is best to use an arranged overdraft responsibly by spending within the predefined limit and repaying it on time. As for unarranged overdrafts, they should be avoided altogether.
Under the right circumstances, debt consolidation loans can be a great way to tackle overdraft debt. You may use it when:
With LoanTube, you get to experience hassle-free borrowing at zero upfront fee.
You can borrow up to £35,000 over 3-7 years with LoanTube.
The rate you are offered will depend on your individual circumstances.
Representative APR Example: On an assumed loan amount of £1,000.00 over 18 months. Rate of interest 71.3% per annum (fixed). Representative 99.89% APR. Total amount payable £1,655.10 of which £655.10 is interest. 18 monthly repayments of £91.95.
Our APR rate starts from 18.22%. The maximum APR we offer is 770%, but you will get a personalised rate tailored to you. The minimum repayment term is 3 months, the maximum repayment term is 7 years.
Warning: Late repayment can cause you serious money problems. For more information, go to moneyhelper.org.uk
Credit subject to status & affordability assessment by Lenders.
LoanTube is a credit broker and not a lender.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on any debt secured against it.