Overdraft basics
Lesson 7 of 14 in our free Banking & Payments guide: a 5-minute money game with the key points below.
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Questions you'll answer
You stay £1,000 overdrawn for a full year on an account with an illustrative 39.9% EAR. Roughly how much interest?
What's an unarranged overdraft?
Quick facts
- Fact: “Overdraft rates are usually much higher than a typical personal loan rate.” — Overdrafts are convenient, not cheap. Long-term borrowing in one gets costly.
- Fact: “Using an overdraft can show on your credit file.” — It's credit, so it's recorded. Staying within limits looks better.
- Myth: “If you're stuck in your overdraft, there's nothing your bank can do.” — Banks must help customers in persistent overdraft use — ask them, and get free debt advice if it's piling up.