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The Pros and Cons of an Overdraft

If your current bank account has an overdraft facility it can represent a convenient and flexible method of making sure that your monthly salary lasts the month.  However, there are all sorts of pros and cons to using an overdraft and you’ll need to make sure that you’re actually making the most of the benefits involved.

First of all, it’s actually really easy to arrange an overdraft with a quick call to your bank who will usually be only too pleased to help you with this matter.  However, try to make sure that you use the overdraft for emergencies only and don’t see this as an extension of the amount of money you have available.  It’s only too easy to get into a mindset of thinking that you actually have an extra £200 per month (if that’s the amount of your overdraft) to spend and use it on a monthly basis but this could lead to debts that will cost you more in the long run.

An overdraft can be a really handy way of borrowing small amounts in the short term and some banks offer a small interest-free overdraft that will go a long way towards tiding you over until your next pay check is deposited.  Make sure that you don’t exceed the authorised limit available to you as this will mean that you incur high charges.

Because there is no actual repayment schedule on an overdraft this will put you in danger of it becoming a never-ending cycle.  Make sure that you pay back the amount you have used as soon as you are able to.

If you should find yourself regularly overdrawn it would be worth shopping around and making sure that you have the cheapest overdraft possible.  Some of the larger banks may also be the most expensive providers as far as an overdraft is concerned.  Use a comparison site to compare overdraft facilities so that you can choose the one that would be best for you.

Many banks will charge 0% on overdrafts for an introductory period to encourage you to open an account with them.  If this is the case, you may have to meet certain criteria to qualify for the deal – it’s really important to thoroughly check the small print and make sure that you’re fully informed as to your responsibilities.  At the end of the introductory period, you might wish to shop around again and take advantage of an offer from a different provider. 

If you need more money than your overdraft offers, then this is the time to consider a longer term loan.  When deciding if a personal loan would be more appropriate in your circumstances, take into account how much the interest would be on the loan.  The structure monthly repayments on a personal loan will probably make it easier to clear your debt in a timely fashion.


For whatever reason you have an overdraft, you must be aware that it’s actually a method of borrowing money and if you find yourself constantly in the position of using your overdraft facility it would be a good idea to take a close look at your spending patterns and try to identify areas where you could make some savings.   Work out a budget and try to stick to it – this might actually be a way of reducing your dependence on your overdraft and getting on top of your finances for the future.