DUMMIES GUIDE TO OVERDRAFTS - CAN YOU HELP EXPLAIN TO ME?

[milkmonster]

I'm rubbish with maths, I can't even do simple arithmatic, so understanding how bank overdrafts work is a foreign language to me!

Cn anyone explain them to me as if I were a six year old!!

I'm a single mother with a newborn and toddler so am currently claiming benefits, meaning my income is so minimal I'm not proud and happy to divulge real sums here in the hope of getting some good advice.

Basically, my bank current account has an income of £125 a week total(benefits)which consists of Child Tax Credit, Child Benefit, Income Support and CSA from the absent dad. There's no other income whatsoever.

I have to move house and need to raise some cash for private rented accomodation downpayments and removal costs (about £1800 in total).

I already have £1000 saved towards the downpayment for the rental, but will struggle saving another £400 for the rental downpayment and then around £400 for the removal costs.

I can't get credit or loans from elsewhere or family/friends. Social Fund will not help as I'm already paying off £300 loan from them for the last time I moved house.

However, I have a £500 authorised overdraft facility with my bank current account.

So, for instance, if my current account averages balance of around £100 'spare' cash every month (after food and bills paid for) and I receive around £500 a month income every month into it, if I used the whole of the £500 overdraft to pay for my rental downpayment, how does that work??

For instance, when I withdraw that £500, what would my bank balance say, ie credit or overdrawn (it currently says balance of £388 with £800 'available' which must mean the overdraft facility), and how much/often do I pay back the overdraft, ie do they take back a few pounds every month out of my balance or more than a few pounds, like £100 every month?

Please assume I'm very thick for this one! but I really need to know if I cn use that £500 overdraft as instant cash, but hve never had loans or overdrafts so don't know how you pay it back, wht penalties if ny there are, etc.

If you had, say £10 in your account, and you took out £500, your balance would say £490 overdrawn. You don't have to make a payment back every month, as you would for a loan, and you will have the overdraft for as long as you originally agreed it for - which might be several years. They will charge you interest, you'll have to check with your bank how much. You may well find that it's cheaper to get a loan than to hang onto an overdraft as the interest charges can sometimes be quite high.

You may be able to get a loan with the Credit Union, Google it. On the whole they want you to save with them for 13 weeks but may waive this in situations of real hardship.

Be careful if using your overfraft to full capacity whilst your only income is benefits.

Banks have the right to withdraw an overdraft whenever they like regardless of the original date set, its written into the terms that overdrafts are payable upon demand. More and more are pulling them where they dont believe enough money goes into the account.

What everyone else has said, but also have a look round for houses that on the "no deposit" scheme. Also - I presume you're currently renting? If so you can claim housing benefit.

Also that sounds a bit low for 2 children, IS and CB.....are you sure you're currently claiming everything you should be (ie have your told Tax Credits about your newborn?)

You hve to be member for ges with a credti union. I cant get credit elsewhere so usual type loans not an option.

I will be climing housing benefit, but they will not pay rent in advnce or the deposti, both of which letting agents require.

The Credit Union normally requires 13 weeks' membership, that's just 3 months, ut we were told that exceptions can be made in cases of genuine hardship

Just found out I can apply for a Budgeting Loan to help towards cost of the rental downpayment, so may not need to use the overdraft after all.

It might be worth speaking to your local council too. If it is for the deposit on the new home, (whether it be council or not)they will sometimes pay the deposit since you are on benefits, and if you move out of the property at a later date, then the council will want the deposit money back. I think it's something to do with HB, but I'm not exactly sure where it comes from, I've never had to use it myself, but a number of my friends have.

FWIW, I had a £500 overdraft, and when I was up to the whole £500, ie: £500 OD, the bank charged me approx £7 a month for the use of it. This was also, as you say, an authorised overdraft.

It's once you go into unauthorised overdraft that it really starts adding up with the interest and charges.

HTH a little

Check on www.entitledto.co.uk and make sure you are getting all the correct benefits.

Also set up the Credit Union account now, it will be useful in the future.