Bank overdrafts


If you have a current account, your bank may agree to let you use an extra amount of money when you have no money in your account. This is called an overdraft.

The bank agrees to loan you a certain amount for a time and you can continue spending up to that limit. You will have to pay back what you spend from your overdraft, plus interest. Interest rates on an overdraft can be high, but you only pay interest on the amount you use.

How an overdraft works

Before you can use an overdraft, you should apply to your bank to make an overdraft available on your current account. If the bank decides that you will be able to repay an overdraft, it can make the option available on either a short-term or longer-term basis.

There will be a limit to the amount of the overdraft. How much of an overdraft you get, if any, usually depends on how well you have managed your account in the past. For example, the bank will check whether you pay your bills regularly and pay off your credit card debt every month. If you have a bad credit history, you may find it difficult to get an overdraft.

The bank will set a time limit for the overdraft to be fully repaid. The overdraft is paid back to the bank when money is put into your account. If you do not repay the overdraft in the agreed time, it can affect your credit history and make it harder to get loans or overdrafts in future.

What if I can’t pay back an overdraft?

Ask the bank for more time to pay back what you owe. The bank is likely to agree to a time extension if you have paid off your debts in the past.

If you still cannot pay back the overdraft and are getting further into debt, contact MABS (the Money Advice and Budgeting Service). MABS will help you work out how much money you can afford to pay back per month. It will then contact the bank for you. MABS will arrange with the bank that you will pay back a certain amount every month until the debt is cleared. MABS offers this service free of charge.

Fees and charges

Many banks charge a fee for setting up an overdraft and an annual fee (called a renewal fee) for continuing it.

You pay interest on the amount you owe at any one time, not on the total overdraft limit available to you. The interest rate on overdrafts is usually a little higher than the rate charged on personal loans and can range from about 11% to about 15%. The rate can change.

If you go over your agreed overdraft limit, you may have to pay surcharge interest.

How to apply

Contact your bank or building society to apply for an overdraft. You may be able to apply online, by phone, or by filling out a printed application form.

Page edited: 21 June 2021