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How does overdraft work?

Ok, say I gto a £50 interest-free overdraft. I get I can now spend up to that amount and not have to pay interest. But, once I do that, is the overdraft gone forever? If I put £50 in my bank account would I get it back or what?

Reply 1

Swanbow

Think of it as an IOU.

The bank will front you £50 if you spend that money after your balance reaches zero. After you spend your overdraft your balance will be -£50. And when you put £50 back into your bank account it will return to zero.

Student overdrafts are helpful, and at zero interest and no fees for three years and usually an extra one or two after you graduate depending on the bank, it is one of the best loans you can get it. Just make sure you pay it off, and budget properly so you aren't constantly in your overdraft.

Reply 2

fefssdf

there would be a time limit on it and then they'd take the money from your account as soon as its in there and if its not in there then youre gonna have to pay interest

Reply 3

fg45344

You would rather not be going below zero.

Sure there are interest free overdrafts but as soon as you go over the time limit for payment (usually 28 days), they will kill you with the interest. It's funny how they put more charges on people who have no money, it's like shooting a dead person over and over again.

Spend money you have, if you don't have the money, don't spend it.

There is a good saying in finance......"leverage or debt is the quickest way of becoming rich, but the most dangerous. It's the equivalent of putting a gun to your head"

(edited 7 years ago)

Reply 4

username1799249

Original post by Swanbow

After you spend your overdraft your balance will be -£50.

One top tip that I learned to my cost is that when you get a balance from an ATM or mini-statement, it won't say you have £-50. It will say you have

£50 OD

the OD meaning overdrawn or "Oh dear!" I misread this once expecting to see £-50 and therefore thinking I had £50 in my account. I promptly went on a spending spree that took me to £100 OD!

Reply 5

Arbe

Just think of -50 as the new 0.

Ultimately you shouldn't really be doing that. You should treat 0 to -50 as "emergency money"

Reply 6

similarBlank

Original post by Arbe

Just think of -50 as the new 0.

Ultimately you shouldn't really be doing that. You should treat 0 to -50 as "emergency money"

I've actually got £250 overdraft with it increasing to nearly £2000 in a few years, I was just using £50 as an example. Is that all really just "emergency money"?

Reply 7

difeo

Original post by similarBlank

I've actually got £250 overdraft with it increasing to nearly £2000 in a few years, I was just using £50 as an example. Is that all really just "emergency money"?

If it's a student one then feel free to spend it, as long as you have some way of paying it off within the time limit of a few years

Reply 8

SophieSmall

Original post by similarBlank

I've actually got £250 overdraft with it increasing to nearly £2000 in a few years, I was just using £50 as an example. Is that all really just "emergency money"?

Yes....because you have to pay it back in the end.