What they are, how they work and what to watch out for
An overdraft can be useful when you need a bit of extra breathing space. But if you’re not careful, it can quickly turn into expensive debt.
At Northern Community Bank, we believe in giving you the knowledge to make confident, informed money decisions without the jargon.
What Is an Overdraft?
An overdraft is a type of short-term borrowing linked to your current account. It allows you to spend more money than you actually have in your account, up to a certain limit agreed with your bank.
There are two types of overdraft:
- Arranged overdraft – pre-approved with your bank, with a clear limit
- Unarranged (or unauthorised) overdraft – when you spend more than your limit or go overdrawn without agreeing it first
Unarranged overdrafts often come with higher charges, so it’s important to stay in touch with your bank if you’re struggling.
Are Overdrafts Free?
No – most overdrafts come with interest or fees.
Since April 2020, banks must charge a single interest rate for overdrafts, rather than daily or monthly fees. The interest is usually high often around 40% APR, which can be more expensive than many loans or credit cards.
That’s why overdrafts should only be used for short-term emergencies, not regular borrowing.
Things to Look Out For
- Be clear on your overdraft limit – and stick to it
- Check how much interest you’re paying – it’s often higher than it seems
- Keep track of your balance so you’re not caught out by unarranged charges
- Don’t rely on your overdraft as part of your monthly income
- Don’t ignore letters or messages from your bank if you’ve gone overdrawn
What If You’re Already Stuck in Your Overdraft?
If your overdraft has become something you’re constantly relying on, you’re not alone and there are options to help.
We can talk through fairer, more affordable alternatives that could help you pay off your overdraft and move forward with more breathing room.
From budgeting help to responsible borrowing, we’re here to support you.
Borrow Better, with Confidence
At Northern Community Bank, we’ll always be upfront about costs, explain your options clearly, and make sure any borrowing is right for you.
We believe in lending that puts your long-term wellbeing first – not just your credit score.
You can always talk money with us.
