Overdrafts have been around since 1728, when RBS first introduced them by request. A recent article by Which? found that some rates were as bad as Payday lenders but still cheaper than asset based lending..
Unauthorised overdrafts have far higher charges since they were provided as a service to help valued customers who occasionally overspent. The bank tolerated the occasional overspend and made some money from it by slapping on the wrist with a higher overdraft interest rate. Nowadays some banks see this as a tactic to squeeze more money from its customers - they can even make more more by forcing you to use asset based lending.
Typically the authorised overdraft may be removed or you will be simply told to phase out the overdraft over time, but the aim is the same – to get you to dip into an unauthorised overdraft. You may even be refused a standard overdraft but allowed to use the unauthorised overdraft as an ongoing facility – the bank is not doing you a favour. The interest rates sit around 27.9%, so if your bank insists on not providing a standard overdraft, shop around, as this is simply be a dirty tactic to get money from you.
Now a days banks have even become more greedy by forcing their clients into asset based lending where it can cost you £1.5K to borrow £20K - Lloyds Commercial Finance are renowned for their hidden charges.
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