Authorised overdraft charges ‘make loan better option’

Consumers may be much better off with a loan than an overdraft, not least as lenders are increasingly charging for such current account facilities.

Norwich and Peterbrough Building Society recently announced plans for a monthly charge to be levied on the use of authorised overdrafts and Mark Bowen, managing director at moneymaxim.co.uk, said this should not come as a surprise.

He stated: “It is part of a growing trend of both banks and building societies to concentrate on certain customer groups and discourage others through a pricing policy that drives them away.”

This also includes some lenders – like Nationwide – withdrawing the free overseas use of debit and credit cards, whereas such a facility has just been offered to existing customers by Norwich and Peterbrough.

At the same time, Mr Bowen suggested those who have debts may find going overdrawn is far from the best option in any case.

He remarked: “If borrowers start to find they are using such facilities regularly or to an increasing degree, there are better ways to manage debt issues.”

Mr Bowen suggested taking out a loan is a better way to fund a debt, with more “competitive” rates being available.

The decision by Norwich and Peterborough to start charging for authorised overdrafts is not the first time a British lender has done this.

Last year, Lovemoney.com commented on the “scandal” of the decision by Lloyds TSB to levy such a charge just as the bank agreed to reduce the amount it levied for an unauthorised overdraft.

By Joe White