Definition · Glossary
Overdraft
Budgeting & Money ManagementPersonal Loans
In plain English
An overdraft allows you to spend more than you have in your bank account, up to an agreed limit. Arranged overdrafts are agreed in advance; unarranged overdrafts occur when you exceed your balance without an agreement and typically carry higher charges.
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Example
Your bank account has an arranged overdraft of £500. Spending £200 more than your balance uses £200 of your overdraft facility.
Don't get caught out
Common misunderstandings
- Overdrafts are a form of credit — they are not free money and interest is charged on the amount used.