Some people in the UK may be struggling to make ends meet, relying on expensive overdrafts in order to cover the costs of living. New research from comparethemarket.com has found that nearly one third of UK adults (30 percent) have to dip into their overdraft because they have run out of money before the end of the month.
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With saving for a rainy day not an option for many, the research found two-fifths (40 percent) use their overdraft for emergency funding.
Nearly one quarter (23 percent) use them to cover the cost of everyday bills.
Worryingly, one in 10 (13 percent) use their overdraft to cover the cost of their mortgage or rental payments – the equivalent of 1.2 million people.
Of these, the research found one fifth (20 percent) use their overdraft to cover the full payment amount, while a quarter (24 percent) use it to cover, on average, half of the cost.
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The average rental price nationally stands at £886, with rents rising at their fastest pace for three years.
The average mortgage payment is £680 per month.
Comparethemarket.com has warned that when it comes to paying monthly bills, turning to overdrafts can be a very expensive way to managed debt.
This is due to fixed daily or monthly charges, as well as potentially having fees for having an overdraft facility in place, the price comparison giant said.
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From April 6, 2020, new FCA rules mean these charges will be scrapped, in a bid to make overdrafts simpler, fairer, easier to manage, as well as easier to compare between current account providers.
Instead, banks must charge a simple annual interest rate for overdrafts, without additional fees and charges.
In response to the changes, a number of high street banks have announced a flat rate fee of 39.9 percent on all overdraft fees.
So far, Lloyds and challenge banks Starling and Monzo are the only banks to have announced a different percentage, which will be tied to customer credit scores.
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However, according to the research, over a third (37 percent) of individuals believe that the flat rate of 39.9 percent will end up costing them more money.
Following the research, the Head of Money at comparethemarket.com has warned that relying on an overdraft in order to fund bills such as a mortgage can be a costly way of managing household living costs.
John Crossley, Head of Money at comparethemarket.com said: “During the course of life we will all have rainy day moments when we’ll need to use emergency funds.
“On these occasions, people need pots of money to dip into – a savings nest egg.
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“Relying on overdrafts to fund regular bills, including mortgage or rental payments, can be a costly way of managing household finances.
“With the rise in overdraft fees, there are other solutions available to pay off debt in a responsible way.
“Borrowers should ensure they only borrow what they can repay and use a soft eligibility checker to prevent damaging their credit score.
“Anybody struggling to make repayments should contact their provider in the first instance.”