Third of people ‘have relied on their overdraft during coronavirus crisis’

September 30, 2020 9:58:40 AM

Third of people ‘have relied on their overdraft during coronavirus crisis’

More than a third of people have relied on their overdraft during the lockdown – and nearly a fifth of this group remain stuck in the red – a survey has found.

Some 35% of people have turned to their overdraft at some point since the coronavirus crisis started, comparethemarket.com found. Within this group, 17% are still stuck in it.

Furloughed workers are particularly likely to have relied on their overdraft, with nearly half (46%) having used it since the lockdown started. Just over a quarter (26%) are still using it.

Across all overdraft users, the typical amount they went into the red by was £515 – suggesting many people have made the most of the £500 interest-free buffers offered by banks during the crisis.

Middle-aged people were particularly likely to have sunk further into the red. The average 45 to 54-year-old overdraft user went overdrawn by £597.

The research also found that on average, people feel it will take seven months for their finances to return to “normal”.

John Crossley, head of money at comparethemarket.com, said: “Overdrafts can be a vital financing lifeline for those who need quick access to cash to tie them over in the short term.

“However, as some providers are starting to wind down interest-free overdrafts and quietly return to a 39% flat fee level, using an overdraft could soon become a more expensive way to source additional funds.

“There are alternatives that may turn out to be more cost-effective. Some credit card providers have a cheaper interest payment compared to an overdraft fee, while some still offer 0% APR (annual percentage rate) or 0% balance transfer deals.

“However, as providers are tightening eligibility criteria, there is no denying it is much harder to find these – so it’s worth looking around to see what is available to you and using eligibility checkers.

“People should also be mindful that 0% APR deals tend to be time-limited, and after a fixed period – typically 12 or 18 months – revert to higher interest rates.”

He added: “Even if it’s only possible to make a small payment on your overdraft, this is better than nothing and helps reduce your interest.

“However, if you are struggling financially, it is worth getting in touch with your lender to ask for a further overdraft holiday extension if needed or seeking out financial help.”

More than 2,000 people were surveyed across the UK between August 25 and September 1.

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