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New Fee-Free Financial Product Aims to End the Days of High Cost Credit PDF Print E-mail
Monday, 18 July 2016
As MPs and consumers groups criticise banks for their punitive emergency overdraft charges.  A new financial product is about to shake up the expensive high cost, short term credit market.

Drafty keeps the speediness of overdrafts and payday loans for individuals in need of emergency cash, whilst slashing the cost and interest rate.

Drafty will enter the market just as the latest research released by Which? finds UK banks are charging consumers more than 12 times the cost of a payday loan for an unarranged overdraft. According to Which? the cost of borrowing £100 from some banks for 28 days amounted to as much as £90 in charges. The charges could be even higher if interest payments or possible unpaid item fees are included, or the money is borrowed over two bank monthly charging periods.

The equivalent from Drafty, set to launch on the 21st July, will cost just £5.04.

Here’s how Drafty works. Subject to affordability and eligibility checks, customers set a limit, and can draw cash up to that limit at any time. Money is usually transferred in minutes. Customers only pay interest on what they use – without any fees – and can save the rest as a safety net for later.

Last week, the Treasury Select Committee also expressed concerns about the costs of overdrafts and the challenges for consumers in finding out the true cost of borrowing. Andrew Tyrie chairman of the Treasury select committee, stated “Consumers need to know what they are being charged for their banks accounts, especially their overdrafts. At the moment, they often struggle to find out.”

Mark Fiander, VP of Marketing at Global Analytics, the company responsible for the new service, says: “Drafty represents a growing movement to deliver fair, transparent credit options for consumers. It’s a new, fee-free way to access credit that could be a cheaper alternative to an overdraft for people paying excessive bank charges.’

The Competition and Markets Authority found that unarranged overdrafts generated about £1.2bn of revenues for banks in 2014. [2]

Mark added: “This is about providing an affordable option to people who need credit, and are being squeezed by the limited choices currently in the market.”
 
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