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Before you borrow

Borrowing - what you need to know

 Need a bit of extra flexibility, a lump sum to buy something special or a cushion for emergency expenses? We offer 3 simple ways to borrow: a Credit Card, a Personal Loan and Overdrafts. These come with a single, simple rate, no gimmicks, and no hidden charges.

1. What to consider

Before you apply for a credit card, store card or bank loan, or increase the amount you can borrow on a card it makes sense to weigh up if you really need to. At times where people are facing rising bills and there is some economic uncertainty, many choose to try to pay back debts to reduce their outgoings in the future rather than borrow more. 

 

So before you take on debt you should consider:

Do you need to borrow money?

  • For example, could you save and buy the item later or could you just do without it?

Should you use your savings instead?

  • If the purchase is a necessity, for example, could you pay out of your savings that you can easily access and then repay back the savings instead of paying back the debt. The money you lose in interest may be less than the cost of a loan. But you need make sure there are no penalties if you take the money out.

Can you afford to borrow money?

  • Consider your existing debts and bills. Weigh up how much you are already paying back and if you can afford more monthly repayments on top. Could you still afford to pay back if interest rates rise or your bills go up? Are your circumstances likely to change – for example a cut in your hours, maternity/paternity leave etc?

How will you pay it back?  

  • You need to work out the total cost of your borrowing – not just the amount you borrow. Be aware of any extra charges or fees. All loans should tell you how much you will pay back overall, including any interest.  Usually the lower the interest the lower the cost – but remember the fees. Generally speaking, the longer period of time you pay back the loan over the more it will cost.  To see what is affordable you should draw up a budget. Then check if you can afford the monthly repayments. You might want to consider different loan options and compare the true cost between them.

Should you borrow from family or friends?

  • Only you can know the answer to this. It can work well if a family member or friend can help you avoid borrowing money with a very high rate of interest – such as a payday loan – in an emergency and the money is paid back. But both parties should consider what would happen to the relationship if the debt was never paid back as it could potentially harm the relationship.

If you do need to borrow what is the most appropriate way to borrow?

  • Each type of borrowing has different pros and cons and might be more appropriate for different time scales. So you need to weigh up which is the most cost-effective and suitable way to borrow to meet your needs.

2. Types of borrowing

Borrowing using an overdraft

Borrowing using an overdraft

Emergency expenses can put a strain on your current account. This is where an overdraft comes in useful. It can be very helpful if you are facing a short-term problem where you might have more going out than coming in.  For example, if you are unexpectedly hit by a large bill but you know you will be able to get back on track very quickly. It’s wise not to use it regularly as interest is charged immediately.

You can apply for an arranged overdraft on your Current Account, and we’ll make a decision based on your financial status. See what we charge for arranged and unarranged overdrafts.

If you think you might need an overdraft it is likely to be cheaper to arrange an overdraft because it can be significantly cheaper than incurring paid or unpaid item fees. Be wary of going over your overdraft limit as this will create additional fees.

Borrowing on a credit card

Borrowing on a credit card

Credit cards are a flexible way to spend and borrow money, whether you shop in stores or online.

They also give you an extra layer of consumer protection as some transactions are covered by Section 75 of the Consumer Credit Act. So if you are buying something that costs over £100 and not more than £30,000 using a credit card can be safer.

But before you buy anything on your card you ideally should consider how you will pay it back. Something that looks like a bargain might end up being very expensive if you buy it on a card and only make the minimum repayment every month. This is because the total cost of interest adds up over a long period. Evaluate how quickly you will be able to pay the card off as this will impact the total cost including interest.

If you can afford to, it makes sense to pay back as much of the credit card debt as you can each month – even if you don’t pay in full. If you are making a large purchase where it will take you many months to pay back then you may want to compare the cost of borrowing on a credit card with taking out a loan.

Moving some of your day-to-day spending and paying by credit card instead of using your debit card can help you improve your credit score. Always paying back on time, ideally in full and regularly will show that you can manage your money effectively and start to build up a good credit history.

How does interest impact me?

  • You’ll pay no interest on purchases for up to 56 days as long as you pay your balance in full and on time. This period may be shorter if you get your card part-way through a month. If you don’t pay your balance off in full we’ll charge daily interest from the date of the transaction until we receive your payment.
  • You’ll have to make the minimum repayments at the end of each month
  • We don’t offer an interest-free period on balance transfers, cash advances and cash machine withdrawals. Interest will build up from the day you withdraw cash or make a transfer, until you pay it back.

Find out more about our Credit Card

Borrowing with a personal loan

Borrowing with a personal loan

Buying a new car or doing up your home? A Personal Loan can help give you more control over your spending. Loans are most often used to spread larger expenditure over a long period to make it more affordable. Loans often have a lower rate of interest than using a credit card. So if you know that it will take you some time to pay back then it will be worth comparing interest rates and what you would pay in total.

Things for you to consider

Because a loan can be a long-term commitment, you need to consider if you will be able to continue to make payments for the whole term of the loan.

You may want to think about what impact a change in your circumstances would have on your ability to pay back your loan. For example, consider what would happen if:

  •  Your employment situation changed – you lost your job or had to retire
  •  Your working hours were cut
  •  Your living costs – rent or mortgage repayments, for example – went up

Find out more about our Personal Loan

What’s the difference between good debt and bad debt?

Good debt is generally a good investment in your future, for example getting a mortgage to buy a house. It should leave you better off in the long term and won’t have a negative impact on your financial circumstances. 

You are likely to have a specific reason for taking on the debt and a clear plan for paying it back. You will have checked that you are getting the best deal that you can – so a low interest rate with a term and charges that are appropriate for your needs, and avoiding penalties if you pay it off early if you can afford to. Examples of good debts are mortgages, student loans or investing in your business.


Bad debt is unaffordable debt, which is unlikely to be of long-term value to you – for example impulse purchases on a store card for items you don’t really need. Borrowing money to pay everyday bills is also not a good idea. If you can’t afford to make your repayments regularly that is also bad debt.

Examples of bad debt could be a luxury holiday you can’t afford or a brand new car that you don’t really need.

To avoid bad debt ask yourself:

  • Do I really need to borrow the money?
  • Have I shopped around for the best deal?
  • Can I afford the repayments comfortably for the length of the term?
  • Will borrowing this money help my finances in the long term?
  • Have I thought through what could go wrong and do I understand all the risks?

3. Responsible Lending

We are a responsible bank, and we want to make sure you can afford to repay what you borrow. We want to understand your personal circumstances so that we don’t lend you an amount that you would struggle to pay back.

If debt is a problem for you, then you can get free confidential advice and help.

Our responsibilities

At Metro Bank we are committed to lending in a responsible way. Treating customers fairly is at the heart of our organisation and this means designing products that give you value, understanding your needs, ensuring the way we do business with you is transparent and generally helping you to make informed choices.

Before we lend you money or increase your overdraft we like to be certain you can afford to repay it, meaning you're always in control of your money. For a loan that means we want to make sure you can afford your borrowing over the whole term of the loan.

If you can foresee changes in your circumstances that may increase your outgoings or reduce your disposable income then please give us a call or visit one of our stores.

Changes to consider are:

  • Employment situation changes – for example, imminent retirement, maternity or paternity or extended leave
  • Reduction in working hours – like fixed contract end dates or zero hour contracts
  • Increase in living costs – eg rent or mortgage repayment increases.

Deciding what's best is a tricky business, so we look at many pieces of information and use a variety of techniques to help us make the right decision. That means things like affordability, credit scoring, credit reference agency information and your history with us.

We have real people using their judgement, experience and skill to make a genuine assessment of your ability to repay.

If we decide not to lend money to you, it will usually be because we are trying to protect your financial health or it is too risky.

Your responsibilities

We have responsibilites when lending money and you do too. Before you ask to borrow money or increase your overdraft, it's worth thinking about your own circumstances.

  • Can you afford to repay the borrowing?
  • What happens if your lifestyle changes and you find yourself with less income or more costs?
  • How will you cope if interest rates increase?

Always bear in mind the potential risks and the long-term damage it might do to your financial health.

FAQs

  • I’m thinking of taking out a joint loan. What do I need to know about these?

    Many couples, or some parents and children take out a joint loan or debt. The advantage is that you could borrow more than one person individually. But the down side is that each of you could be asked to pay the full loan if the other person doesn’t.

    Joint loans can include:

    • Secured loans – such as a mortgage

    • Unsecured loans – for example a bank loan

    • Overdraft on joint account 

    Contrary to popular belief – if you take out a joint loan you are not responsible for your half or share of the of the loan. If you take out a joint loan you are agreeing to pay all of it if the other person can’t or won’t pay their share.

    There is no difference either what kind of relationship you are in – for example married, in a civil partnership or no relationship at all.

    If you have a joint mortgage and your husband, wife or partner dies you will be responsible for all of it. If you break up with a partner you have a joint account with and they run up the overdraft, you could face the bill for it. 

    You need to be very careful about any joint agreements you enter into.

  • How important is my credit history for getting a loan?

    Very important. Any potential lender will check your credit history before offering you a loan. They will check your income and that you have paid back any previous loans in full and on time. They will also check to see if you are a responsible borrower so they will look at how often you pay your bills and debts late. They will also check things like your address, your identity and how much other debt you have against your name.

  • What’s the difference between an arranged and unarranged overdraft?

    If you go into your overdraft without first arranging it with your bank or going over the amount you have agreed with the bank is known as an unarranged or unauthorised overdraft. It can be very costly – as they often have lots of charges. For example, interest on the overdrawn balance, or charges for items that are returned unpaid.

    If you know that you are likely to go overdrawn it is best to arrange this with the bank beforehand. It can give you peace of mind and give you a useful way to manage your money when you need it. It will also minimise charges. But any request for an overdraft will need to be approved.

    At Metro Bank, standing orders, Direct Debits, and future dated payments are all processed in the morning. If there is not enough money available in your account to make these payments, we will try to process them again at 2pm on the same day. This gives you more time to pay money into your account, allowing for the payment to be taken successfully the second time round without incurring any late payment charges.

  • Do you have any tips for helping me avoid going overdrawn accidentally?

    Sometimes you can find yourself going overdrawn just because something goes into your account later than you expect or comes out earlier than you planned. So here are some ways of avoiding the charges that can result.

    • Keep an eye on your balance – You can check your account balance in store, online, by phone using your mobile app, or through a cash machine to make sure you have enough money in your account to pay everything due. The money in your account must be available to withdraw – for example, cheques can take up to a week to be cleared.

    • Keep a record of any cheques you write and when they have been paid – It is possible for the cheques to be presented up to a year after the issue date, so make sure you know when a cheque is being cashed against your account. 

    • Track your regular payments – Review your statements and make a list of the dates of your direct debits, standing orders and other regular payments – for example, mortgage, loan or rent. Ensure that funds are available when those payments are due to come out of the account.

    • Move the payment date if possible – If a direct debit payment is due at a difficult time in the month for you, contact the company and ask them to collect it at a more convenient time. 

    • Transfer money into your account by 12.00 midday – If you ensure that sufficient funds are available in your account by 12:00pm at the latest on the day the payment is due, you will not incur a paid or unpaid item fee. These need to be cleared funds, as simply transferring funds from another account by 12:00pm is not sufficient as it can take a while for the money to be transferred, even with faster payments. Transferring from another Metro Bank account is however instantaneous.

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