What the hell is an overdraft?

Hi!

I don't know much about banking... I never really understood what an overdraft really meant. It seems like something only offered in banks in the UK.
How different is it from a credit?
Please explain like I'm five

Thanks!

Reply 1

username1208193

20

Original post by Annguun

Hi!

I don't know much about banking... I never really understood what an overdraft really meant. It seems like something only offered in banks in the UK.
How different is it from a credit?
Please explain like I'm five

Thanks!

This is funny.

Reply 2

Interea

19

Original post by Annguun

Hi!

I don't know much about banking... I never really understood what an overdraft really meant. It seems like something only offered in banks in the UK.
How different is it from a credit?
Please explain like I'm five

Thanks!

As far as I'm aware it's just a little extra money you can access if you really need it, without having to take out a loan and pay interest on paying it back etc. (as long as you stay within your limit). So for example, my student account has a £250 overdraft - if I completely run out of money and need to buy something urgently, I have that extra £250 available to me for as long as I need it, without worrying that I'm going to have to pay it back immediately as well as some ridiculous amount of interest.

I don't know what happens when you go over your overdraft, as I don't plan on ever needing to (I'm a strict budgeter and saver :smile:

).

Reply 3

username1539513

21

It’s basically extra money your bank gives you on a student account to go into if you get short of money, they don’t charge you interest if you go into it. Mine is currently £1500

Reply 4

Napp

22

Original post by Annguun

Hi!

I don't know much about banking... I never really understood what an overdraft really meant. It seems like something only offered in banks in the UK.
How different is it from a credit?
Please explain like I'm five

Thanks!

Simply put it is an authorized/unauthorized loan on your current account. Student accounts tend to give you interest free ones i.e. temporarily free money, in a manner of speaking which then turn into an interest bearing one after you leave.
Long and the short of it being it is quite literally credit.

Reply 5

Oxford Mum

21

Original post by Annguun

Hi!

I don't know much about banking... I never really understood what an overdraft really meant. It seems like something only offered in banks in the UK.
How different is it from a credit?
Please explain like I'm five

Thanks!

Hi Annguun

Having an overdraft means having less than £0.00 in your bank account.

I was lucky when I was a student because in my day we had student grants from our local authority. That and budgeting carefully meant I never had an overdraft. However when I was leaving uni there was talk of bringing in student loans.

Because you are a student and maybe do not have a job, the banks offer you an overdraft to tide you over.

It's inevitable that, as a student, you may have an overdraft. However it's important to try not to overspend if possible.

As a student I used to work for a high street bank in the holidays. If I went 1p overdrawn I would have had to have explained myself to the bank manager. This inspired me to be careful with money, and the habit of thrift has helped me over many a difficult time.

What the hell is an overdraft?

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