Overdraft

What is an overdraft?

An overdraft is a type of credit that allows you to withdraw more money from your account than you have deposited. This can be useful if you need to make a payment but do not have enough money in your account at the time. However, overdrafts can be expensive, and you should only use them if you are sure you can afford to repay the money you have borrowed.

How does an overdraft work?

When you have an overdraft, your bank or building society agrees to lend you a set amount of money. This is called your 'overdraft limit'. You can use this money whenever you need to, up to your limit. For example, if your overdraft limit is £500 and you have £50 in your account, you can still spend up to £500.

If you go over your overdraft limit, you will usually be charged fees. These can be high, so it's important to make sure you stay within your limit.

What are the benefits of an overdraft?

Overdrafts can be useful if you need to make a payment but do not have enough money in your account at the time. They can also help you to avoid being charged fees for things like bounced payments.

What are the drawbacks of an overdraft?

Overdrafts can be expensive, and you should only use them if you are sure you can afford to repay the money you have borrowed. Fees for going over your overdraft limit can be high, so it's important to make sure you stay within your limit.

How can I avoid being charged for an overdraft?

There are a few ways you can avoid being charged for an overdraft:

  • Only use your overdraft when you really need to
  • Keep track of your account balance so you know how much money you have available
  • If you are close to your overdraft limit, try to avoid making any more payments until you have deposited more money into your account

What happens if I go over my overdraft limit?

If you go over your overdraft limit, you will usually be charged fees. These can be high, so it's important to make sure you stay within your limit.

How can I get out of my overdraft?

There are a few ways you can get out of your overdraft:

  • Stop using your overdraft
  • Deposit more money into your account
  • Arrange an overdraft with a lower limit

Should I get an overdraft?

Overdrafts can be expensive, and you should only use them if you are sure you can afford to repay the money you have borrowed. You should also make sure you are aware of the fees charged for going over your overdraft limit.

How do I compare overdrafts?

There are a few things you should compare when you are looking at different overdrafts:

  • The interest rate - this is the rate you will be charged for borrowing money through your overdraft
  • The fees - some banks and building societies charge fees for things like going over your overdraft limit, so it's important to check what these are before you apply
  • The repayment terms - you will need to repay any money you borrow through your overdraft, so it's important to check how long you have to do this

See more terms:

No credit checks or founder guarantee, with 10-20x higher limits.
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