Skip to main content Skip to main navigation
Skip to accessibility page Skip to search input

What’s an overdraft and how does it work?

Ever been caught out by an expense that gets paid out of your transaction account when there’s not enough money? That’s where bank overdrafts come in. An overdraft is a line of credit personal loan that covers you if your balance drops below zero.

You can either apply for an overdraft (an arranged overdraft), or if you accidentally make a payment when there isn’t enough money in your account, your bank may treat it as an overdraft anyway (an unarranged overdraft).

Arranged overdrafts

If you organise an overdraft, you’re then able to access extra money through your account up to an approved limit, and you won’t pay an account overdrawn fee. Overdraft limits vary depending on your financial situation and ability to repay the money. For instance, Westpac offers a Personal Overdraft of $250 to $25,000 and a Temporary Overdraft of $250 to $50,000. And as it’s a line of credit, you’re only charged interest on the overdrawn amount.

Unarranged overdrafts

While the bank may honour an overdrawn payment even if you haven’t arranged an overdraft, you will probably be charged an account overdrawn fee on top of the interest payable. If this happens to you, keep in mind that you may be able to get the fee waived if it’s the first time this has happened and you’re a valued customer.

Why would I need an overdraft?

These days, so many payments come out of your account electronically that it’s easy to be caught out. Arranging an overdraft is one way of covering yourself for a short-term shortfall. Just be sure to consider the costs, including interest rates, fees and charges, to work out if it’s a smart option for you.

If you’d like to learn more, read 5 things to consider before applying for an overdraft.

Ready to get started? Take a look at Westpac’s Overdrafts.


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.