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Borrowing from banks

Before you borrow money, always consider whether:

Overdrafts

An overdraft allows you to spend more money than you have in your bank account - up to a limit agreed with your bank. You only pay interest on the overdraft money you use, and you don't have to tell the bank what you're using the money for.

If you go over the limit, or overdraw without arranging it with your bank first, you may have to pay a penalty charge and a high rate of interest. Your bank will probably charge you for sending you a reminder letter, and for any direct debits or cheques you put through the account. The bank may also freeze your account until the overdraft is paid off - which will mean you won't have access to any money, such as your salary, paid into the account.

Some banks also charge a monthly fee and a fee for setting up the overdraft, so it can be expensive if you borrow a lot of money and don't pay it back quickly.

Bank loans

A loan is a formal arrangement, usually for a fixed period of time (which you agree at the start). If you're thinking about taking out a loan, you'll need to agree with your lender:

You'll need to check the monthly repayments carefully to make sure you'll be able to afford them. It's also a good idea to shop around for the best deal before you make a decision. Also, make sure any debt isn't secured against your home.

• More about personal loans Opens new window

What to do if you have difficulty with repayments

Money you owe to your bank is a non-priority debt, which means that you might not lose your home or go to prison for not paying these debts, but you can still be taken to court by your bank and ordered to pay what you owe - often with extra costs on top.

If you owe your bank money:

• More about prioritising your debts
• How to deal with debt problems
• Use the FSA budget calculator Opens new window

Managing repayments

If you can't manage your repayments, it's important to contact your lender as soon as possible. The Banking Code commits your lender to look at your position sympathetically and positively - they'll often be prepared to discuss options such as changing the rate of repayment, letting you stop paying for a while or paying off the loan over a longer period.

• Read more about the Banking Code Opens new window

Missing repayments

If you regularly miss repayments and don't talk to your lender about your circumstances, your bank could take you to court for non-payment and get a County Court Judgment (CCJ) against you. This will count against you if you apply for credit in any form in the future.

• Find out more about CCJs

Negotiating with your bank

It's always worth trying to get your bank to offer a better deal on rates and conditions.

Whenever you're negotiating a loan or overdraft, it's a good idea to show that you've thought carefully about it. As well as talking to the bank, you could write a letter explaining:

It's important to be honest about your financial position. If you're worried about money, it's advisable to get in touch with your bank as soon as possible.

Settling disputes with your bank

If you disagree with a decision, you can complain to your bank. Disputes might be about:

Give your bank up to eight weeks to try to resolve your complaint. The bank should then send you a letter setting out its final decision and telling you how to contact the Financial Ombudsman Service (FOS) if you're unhappy with the result.

If you don't receive a final letter within eight weeks, and you don't want to give the bank more time, you can contact the FOS for a complaints form.

• FOS website Opens new window

Where to get help and advice

Citizens Advice Bureau (CAB)

Your local CAB is a good starting point for free advice. They provide free information and advice on legal, financial and other problems. You can find your local CAB in the phone book or on the CAB website.

• Find your local CAB Opens new window

National Debtline

National Debtline offers free, confidential and independent help over the phone for people in England, Scotland and Wales. You can call their helpline on 0808 8084 000 between 9.00 am and 9.00 pm from Monday to Friday and from 9.30 am to 1.00 pm on Saturdays (24 hour voicemail).

The National Debtline website has some useful publications that you can download too.

• Free debt advice and information from National Debtline Opens new window

Consumer Credit Counselling Service (CCCS)

The CCCS has a helpline providing free and impartial advice to people with debt problems. You can call their helpline on 0800 1381 111 between 8.00 am and 8.00 pm from Monday to Friday. You can also write to them.

• Help and advice from the Consumer Credit Counselling Service Opens new window

More useful links