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England and Wales > Debt Advice > Priority Debts > Bank Overdrafts and Loans

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Bank Overdrafts and Loans

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If your bank account regularly exceeds any arranged overdraft limit, not only will you incur penalty interest and charges, but you also run the risk of having the overdraft limit cancelled or not renewed when the agreement expires.

Management of your business and household finances can become chaotic if you lose control of your bank account. Unpaid cheques, direct debits and standing orders will make your debt problem worse and deposits made into your bank account may be absorbed into paying interest and bank charges rather than covering payments you need to make.

You may find it easier to convert your overdraft into a loan but remember that, you will lose the flexibility of an overdraft, as it is often a condition that your current account operates in credit only.

You will also be committed to a monthly repayment – make sure you can afford this and make sure the interest rate is no higher than the overdraft rate.

If your bank is trying to persuade you to give security (i.e. against your property) for a loan or overdraft that is presently unsecured, phone us for advice.

If you cannot meet your current loan repayments or are in danger of going over your overdraft limit, it is important that you speak to your bank and agree an arrangement. This may include a restructuring or rescheduling of current borrowing.

If you are able to, it is generally easier to deal directly with your own branch (and manager and staff) than deal with a central debt recovery unit.

If you are able to reduce the balance to within the overdraft limit this may reduce borrowing charges.

Phone us for advice if the bank threatens to close your account or send it to a debt recovery unit.

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Secured or Unsecured?

Bank overdrafts and loans may be secured or unsecured.

Secured
This is where the bank has security over some or all of your business assets. In some cases they may also have security over personal assets such as a family home.

A secured loan or overdraft must be treated as a priority debt. If you are a director of a limited company, you may have signed a personal guarantee that may be supported by a security over your home – this must also be considered as a priority debt.

Unsecured
Loans and overdrafts are unsecured where the lender does not have any security or guarantee. However, depending on the circumstances, you may need to treat these as priority debts if you feel that you cannot get a banking service elsewhere and it is essential in the running of your business.

Phone us if the bank threatens to stop cheques and put restrictions on your account.

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