Xela Finance

What are they? Overdrafts are another form of credit facility. It is money made available to you by the bank.

With most banking accounts, specifically current accounts. Or a checking account if you’re from the US. Will normally have an overdraft with it. For example on my student current account I have an overdraft of £500. This £500 is like a buffer amount in the account so if I ever need some money really quickly I can use that £500. However if you don’t pay it back within the agreed time in the terms and conditions then you may be liable to fees on the amount used.

Many people in the UK use their overdrafts every day, week and month. And this isn’t a bad thing if you pay off the balance each month, it’s kind of like a credit card. If you pay off the balance then it can benefit your credit score. However if you can’t pay off the overdraft then this can have a negative impact against your credit score.

I know some people that have used their whole overdrafts, and their overdraft is several thousand pounds. Now, this isn’t bad if the overdraft is fee free for a certain amount of time. (if you’re a student this is likely to be the case, normally the overdraft is fee free until you graduate) So you can get away with it. If you’re not a student then it is much stricter, you don’t get charged a fee for a few weeks or a month and then after that you can get charged each day that your account is in overdrawn.

This post is quite short as there isn’t much more to overdrafts than what has been discussed. So just be careful. Make sure you have funds coming into your account in time to pay off the overdraft. Just like with credit cards, use them wisely and they can be a massive help. Don’t use them wisely and they’ll be a hinderance.