Overdrafts: arranged vs unarranged

Lesson 5 of 12 in our free Borrowing guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Borrowing is free for everyone.

Questions you'll answer

Dex: "Overdraft interest is basically the same as a mortgage rate, bro." Is he right?

You agreed a £250 limit with your bank and you're at −£80 → Arranged. Within an agreed limit = arranged.
Your limit is £250 and a direct debit takes you to −£290 → Unarranged. Past the agreed limit = unarranged. Banks often decline payments instead.
Paying for shoes in 3 instalments at checkout → Not an overdraft. That's BNPL — a different type of credit.
Spending on a credit card → Not an overdraft. Separate credit product with its own limit and rate.
Myth: “Banks can still charge a fixed £5-a-day overdraft fee.” — Fixed daily/monthly overdraft fees were banned in 2020. It's a single interest rate now.
Fact: “Your bank can decline a payment that would take you past your limit.” — That's common — awkward at the till, but cheaper than the alternative.
Fact: “If you're stuck in your overdraft, banks should help if you tell them you're struggling.” — The FCA expects banks to support customers in financial difficulty. Free debt advice can help too.