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5 things to think about before arranging an overdraft

Sometimes there’s just too much month at the end of the money. If you’re ever worried you’ll be caught out by one payment too many, you may be thinking of an overdraft to help with your cash flow. Here’s a checklist of things to consider before going ahead.

What it’s good for

An overdraft is a type of personal loan that’s handy for covering short-term cash flow shortfalls. It might be useful for occasions when an expense catches you unawares or you need some extra cash but you’ll be able to pay off the full amount quickly.

What it’s not good for

In general, an overdraft isn’t the most suitable option for big, one-off purchases – like a holiday, home renovations or a new car. These may be better served by an unsecured personal loan or a secured loan, if you’re buying a car. An overdraft is also not the best option if you’re having serious cash flow issues, as you could end up getting further into debt.

The real cost of an overdraft

Despite the name, keep in mind that an overdraft is really just another form of credit that comes with interest charges, fees and other charges. These can include an establishment fee and a monthly service fee. So check the costs, terms and conditions carefully.

Your financial circumstances

As with any financial decision, you’ll want to work out whether the overall cost of an overdraft is a good fit for your situation and budget. This includes deciding on a credit limit that you’re comfortable with and checking whether your overdraft is payable on demand.

Whether there’s a better option for your needs

To get the best deal, you might also want to consider other options to suit your needs and compare the various benefits and costs. For instance, if you’re aiming to consolidate your debts, other options to look into would be a debt consolidation loan or potentially a credit card with a good low rate balance transfer offer.

If you’d like to learn more, take a look at our Personal Overdraft  and Temporary Overdraft.


Things you should know

Conditions, fees and normal lending criteria apply.

For more information, see our full terms and conditions (PDF 1MB) or contact us. Terms and conditions may be varied or new terms and conditions introduced in the future.

Variable rate may change without notice. More product details are available on request.