Overdrafts
Can anyone get an overdraft?
Not everyone will be eligible for an overdraft. Whether you are eligible for an overdraft depends on your credit rating, which the bank will check when you open your account.
What is a credit rating?
A credit rating is a ranking that the bank will give you based on your financial history. If you've been in debt a lot and not repaid money, you'll have a poor credit rating. But, if you've operated your finances responsibly, you'll have a good credit rating and you're more likely to be offered loans and other types of credit.
How big an overdraft can I get?
In theory, there's no limit to how big an overdraft you can get. The amount that the bank is prepared to lend you is based purely on your financial history. If you have been irresponsible with your money in the past and not repaid debts, they probably won't offer you a very big overdraft facility. If you have been responsible with your money, you're more likely to get a bigger overdraft.
What happens if I go over my limit?
If you go over your overdraft limit, you'll be in what is termed 'unauthorised overdraft', and you will have to pay higher interest on that money. The bank will probably also charge you a penalty fee for breaching that overdraft limit.
What is an unauthorised overdraft?
An unauthorised overdraft is when you breach your agreed overdraft with your bank. If you have an agreed overdraft of £500 and you borrow £600 off the bank, you're technically in unauthorised overdraft, and the bank will charge you a fee, as well as higher interest.
Are overdrafts a sensible way of borrowing money?
An overdraft can be a sensible way of borrowing money but it depends purely on the amount of interest you are going to have to pay. If the rate of interest you're being charged on an overdraft is cheaper than on credit card, then that is the best way to borrow that money. However, if you can get a cheaper credit card, that's the most sensible way for you to borrow money.
