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Bank overdraft

A bank overdraft can be authorised or unauthorised.

  • Authorised overdraft
    You arrange this with your bank in advance and agree a limit up to which you can borrow. The money is drawn from your current account. There is no minimum repayment and you can take the money up to your overdraft limit using any of your usual withdrawal methods.
  • Unauthorised overdraft
    This is where you haven’t agreed an overdraft facility with your bank and have drawn more money out than you have in your account either deliberately or accidentally. You will pay extra charges if you do this and these can build up.

How do they work?

Some banks offer an interest-free overdraft for a certain period, but generally interest rates are higher than personal loans, and you may have to pay arrangement fees too. Charges can also be high if you go over your limit.