Bank overdrafts

If you spend more than you have in your bank account, you are said to be in ‘overdraft'.

If you tell your bank in advance that you will be overdrawn they will usually agree an overdraft limit with you. This is an authorised overdraft and some banks may charge you for this service and for interest on the borrowing.

If you have not told your bank in advance that you will be going overdrawn then your overdraft is unauthorised and it is very likely that they will charge you, sometimes quite heavily, on top of interest for the borrowing as well.

Top tips

  • Authorised overdrafts are quite cheap in comparison to unauthorised overdrafts. So make sure you ask your bank if they would be willing to set up an overdraft for the amount you need.
  • You should try to repay your overdraft as quickly as you can, otherwise they may be costing you more than your other borrowings, especially if you have to pay other banking charges.

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