Borrowing from banks
Before you borrow money, always consider whether:
- you really need a loan
- you can afford to repay it
An overdraft allows you to spend more money than you have in your bank account - up to a limit agreed with your bank. You only pay interest on the overdraft money you use.
Should if you go over the limit, or overdraw without arranging a limit bank first, you may have to pay a penalty charge and a high rate of interest. Your bank may also charge for sending a reminder letter, and for any direct debits or cheques you put through the account.
The bank may freeze your account until the overdraft is paid off. That would mean you could not get access to any money in the account, like your salary.
Banks also charge a monthly fee and a setting up fee the overdraft, so it can be an expensive way to borrow money.
A loan is a formal arrangement, usually for a fixed period of time (which you agree at the start).
If you're thinking about taking out a loan, you'll need to agree with your lender:
- how much money you can borrow
- how long you can borrow it for
- how much interest you'll pay
You'll need to check the monthly repayments carefully to make sure you'll be able to afford them. Shop around for the best deal before you make a decision. Avoid securing such debt against your home.
What to do if you have difficulty with repayments
Money you owe to your bank is a non-priority debt, which means that you might not lose your home for not paying the debts, but you can still be taken to court and ordered to pay what you owe - often with extra costs on top.
If you owe your bank money and cannot pay:
- get advice
- make a list of all your debts
- decide which ones you need to pay off first
- work out your personal budget
- calculate how much you can offer to pay each month
- talk to your bank about the situation
Where to get help and advice
- Citizens Advice Northern Ireland
- Step Change Debt Charity
- Money Advice Service
- Dealing with debt problems - a guide
- Interactive debt test (Money Advice Service website)(external link)
- Budget Planner (Money Advice Service website)(external link)
If you regularly miss repayments or can't manage your repayments, contact your lender as soon as possible.
The Banking Code commits your lender to look at your position sympathetically and positively. They may offer options such as changing the rate of repayment, letting you stop paying for a while or paying off the loan over a longer period.
If you do not contact your lender about your circumstances, your bank may take you to court for non-payment and get a County Court Judgment (CCJ) against you. This will count against you if you apply for credit in the future.
Negotiating with your bank
It's always worth trying to get your bank to offer a better deal on rates and conditions. Whenever you're negotiating a loan or overdraft, it's a good idea to show that you've thought carefully about it.
As well as talking to the bank, you could write a letter explaining:
- your reasons for needing the money
- how long you think you'll need it for
- how you're going to repay it
It's important to be honest about your financial position. If you're worried about money, it's advisable to get in touch with your bank as soon as possible.
Settling disputes with your bank
If you disagree with a decision, you can complain to your bank. Disputes might be about:
- interest added to a loan
- extra fees which weren't expected
- the withdrawal of a loan facility
You should give the bank at least eight weeks to try to resolve your complaint. The bank should then send you a letter giving its final decision and telling you how to contact the Financial Ombudsman Service (FOS) if you're unhappy with the result.
If you don't receive a final letter within eight weeks, and you don't want to give the bank more time, you can contact the FOS for a complaints form.