Barclays cuts overdraft limits for some customers - what are your options?

Barclays customers who have been given 30 days' notice ahead of their arranged overdraft limit being cut will have to send ‘proof’ if they want to keep it. 

The bank changed its overdraft reviewing process in 2021 and has been contacting those with ‘unaffordable’ limits. Barclays customers may also find their overdrafts being removed altogether if it’s not been used for a long time.

Here, Which? explains what your rights are if your overdraft limit is cut, and what alternative methods of short-term borrowing you could consider that may be more suited to your needs.

Why has Barclays cut my overdraft limit?

Barclays told Which? it was only contacting customers whose current overdraft limit is deemed ‘unaffordable’, according to its review.

This review is done once a year, and is based on all the financial information the bank holds on you. If the review finds your overdraft limit is too high, it will plan to reduce this to a lower limit, also taking into account how much the account has been used over the past 12 months. 

If your overdraft has not been used for a long time, Barclays may remove it altogether. 

If the review finds you can ‘afford’ your limit, you will not be impacted - even if you’re not used your overdraft within the last 12 months.

A spokesman said: ‘It’s important to manage an overdraft like any other debt, and we have a duty of care to try to prevent customers’ overdraft limits being more than they can afford. 

'We’re giving customers sufficient notice to allow them to respond to any planned change and take the most relevant and appropriate action for them. 

‘If customers feel they are able to afford their current limit, they will need to provide additional information to confirm their income and expenditure, so we can meet our requirements as a responsible lender.’

• Find out more: best bank accounts for overdrafts

How many customers are impacted?

We’ve seen a spate of complaints on social media directed towards Barclays, and our Which? Money Helpline has taken several calls from members who had their limits cut - previously, the limits had been more than £3,000. 

Barclays would not tell us how many customers have had their overdraft limits cut.

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How to appeal the decision

If your overdraft limit is reduced, you have two options; you can appeal the decision by including details of your income and expenditure to Barclays, in an attempt to prove you can afford the higher limit. This will have no impact on your credit score. 

If your appeal is rejected, you can reapply for an overdraft with Barclays, but this is subject to a hard credit check and will show up on your credit report. If your application is likely to be unsuccessful, you may be better off switching.

• Find out more: how to check your credit score

FCA monitoring overdraft situation 

The Financial Conduct Authority (FCA) is monitoring the situation with overdrafts during the cost of living crisis.

It said firms need to consider the circumstances of their customers and any vulnerabilities when making changes to available credit, and allow people time and the opportunity to challenge and complain if they disagree. 

An FCA spokesman added: 'With the cost of living rising, more consumers may need to turn to the credit market, including overdrafts. Lenders need to treat people fairly as individuals, and consider their needs. We have told lenders this, and will continue to monitor.’

• Find out more: how to pay off your debts

Are other banks reducing overdrafts?

We contacted biggest banks and building societies to find out what their policies were on reviewing arranged overdrafts. Here is a summary of the responses we received, listed alphabetically. 

HSBC

HSBC carries out periodic reviews to check that overdraft limit are affordable, but does not proactively remove customer overdrafts if they are unused. 

Lloyds Banking Group 

Lloyds Banking Group, which includes Lloyds Bank, Halifax and Bank of Scotland, reviews customers overdrafts to ensure they are affordable but does not have a set period of inactivity which would prompt them to get in touch. 

NatWest Group

NatWest Group, which includes NatWest and Royal Bank of Scotland, said it doesn't have a set review point for customer overdrafts, but continually looks at the way customers are using its products so it can suit their needs. It has no immediate plans to make changes to customer overdrafts.

Nationwide Building Society

Nationwide does not remove overdrafts because they are not being used, however it regularly reviews overdraft limits to ensure they are appropriate. 

Santander

Santander told Which? it does not intend to remove any overdraft limits if they are in use. If an account is dormant and that customer is not in their overdraft, they may reduce the limit.  

The Co-operative Bank

 The Co-operative Bank reviews overdrafts a minimum of once a year, and is closely monitoring the impacts of the cost of living crisis on its customers. 

Virgin Money

Virgin Money said overdrafts are regularly reviewed and full customer assessments are carried out monthly. 

Changes to overdraft limits are mainly customer driven - eg a customer deciding to reduce their own limit. Only customers with dormant accounts, or those who show signs of financial difficulty, will be considered for an overdraft reduction.

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Alternative overdraft options

The Barclays arranged overdraft has an interest rate of 35% EAR, which could be expensive if you need to borrow money for a long period of time. 

These alternatives could suit you better: 

A fee-free overdraft 

Some providers offer fee-free overdrafts, but they often come with caveats - so make sure you know the rules before you sign up. 

For instance, First Direct offers an interest-free overdraft of £250 on its standard current accounts. However, if you borrow more than £250, you’ll pay 39.9% EAR.

Nationwide's FlexDirect account offers an interest-free overdraft for a full year, but after this you'll have to pay 39.9% EAR.

Meanwhile, there are cheaper arranged overdrafts available. Challenger bank Starling offers 15% for customers with the best credit score, but you may get a rate of 25% or 35% instead, depending on your score.

Check out our guide on the best bank accounts with overdrafts to get more information.

• Find out more: best and worst banks

Money transfer credit card

A 0% money transfer credit card can be used to tackle overdraft debt as it allows you to effectively transfer the debt from your current account to the credit card.

The balance on your credit card will be interest-free for a set period. The best deals offer up to 18 months, giving you extra time to pay back what you owe. 

However, the best 0% money transfer credit cards are reserved for those with a good credit score. So it's a good idea to check your credit history before applying. 

• Find out more: best 0% money transfer credit cards

Personal loan

If you have a large amount of overdraft debt, you might be better off taking out a personal loan which requires you to pay a fixed amount each month over a set period.

A personal loan doesn’t offer ‘revolving credit’ in the way a credit card or overdraft does, so you won’t be able to borrow more as soon as you make repayments. 

This makes it a good option if you’re worried about how disciplined you'd be with a credit card, or paying down your overdraft bit by bit, or you just want to clear your debt.

• Find out more: best personal loan deals