An overdraft is a type of credit that’s linked to a bank account. It allows you to spend more money than is in your account up to an agreed limit.
The balance on your account fluctuates each time you pay money in or make a withdrawal, but you have the comfort that you’re covered by your overdraft limit and everything will be paid.
It’s important to remember that overdrafts are debts and that they are repayable ‘upon demand’. This means that the bank can ask for the money back in full, at any time.
Overdrafts often have higher interest rates than other ways of borrowing and this can mean that it’s an expensive way to borrow money. There are two types of overdraft:
An arranged overdraft is where the bank agrees that you can spend more money than is in your account, up to a certain limit. You’ll be charged interest while you’re using the overdraft, but won’t have any other charges to pay unless you go over the limit. The bank can sometimes make a charge for setting up the overdraft.
An unarranged overdraft is when you spend more money than is in your account or you exceed your existing limit, without the bank’s permission. Your bank is likely to add changes to your account if you do this, and these charges can add up very quickly. They may also start to return cheques and direct debits as unpaid and charge you for the work involved in this.
We can help
Overdrafts can be very difficult to deal with, and once you’ve spent the money in your overdraft it can be hard to pay it back. We can give you tailored information on budgeting and money management, as well as helping you with your debts.
You can use Step Change online Debt Remedy tool Or, if you’d prefer to call us, then please call us on 07541978789 to speak to one of our volunteers who will help you get your situation back on track. Speak to one of our volunteers. Debt information is tailored to your personal situation and completely free of charge