Should I get an Overdraft?

Many of us will go overdrawn at one time or another. However, it is something that we should really think hard about. An overdraft is a form of loan, which means that we have to pay interest on it. This cost is therefore something that we should justify when we are deciding whether an overdraft is the right idea for us.


The cost of the overdraft is the main disadvantage of using one. The costs will vary between banks though and so you might benefit by comparing them and changing your checking account to one where the overdraft costs are lower. Even if you do not want to do this, it is wise to look at the costs so that you are aware of them. Knowing how much something costs will help to motivate you to pay it off more quickly or to borrow less. Obviously, if you can repay it more quickly you will be charged less interest and therefore the cost of the loan will be less.


It is worth finding out if you are eligible for an overdraft and how much you can borrow. If you have a low credit score you might find that you will not be able to borrow so much money or you may not be able to borrow anything at all. If you cannot get one at all then you will not have to make a decision about whether you should get an overdraft or not. If you can only get a small one it could still be enough for your needs but if you need more then you might have to look for alternatives. It might be possible for you to still use an unauthorised overdraft. These are not arranged with your bank but you just borrow money anyway. These are more expensive than authorised overdrafts and it is best to avoid them as they can be the most expensive way to borrow money.

Credit Score

Having an overdraft will have an impact on your credit score. If you pay it back quickly then the impact will be minimal as it will show that you are capable of repaying debt. However, if you have one for a long time or you keep repaying it and then borrowing again this may have more of a negative impact. If you think you need to be careful of your credit score, perhaps because you want to get another loan or you want to move to a new apartment and a credit check will be needed, then this is something that you need to be careful of.


It is worth being aware of what the alternatives are so that you can make an informed decision. If you have savings or can go without spending the money, then this will be a cheaper option for you. Using savings can be hard when you have spent a lot of time and effort building them up and you like to have them there to fall back on. However, you will be able to replenish those and it will be cheaper to use them and lose the interest you are getting on them than using an overdraft and paying the interest on that, in most cases anyway. It is worth calculating this and then you will be able to make a choice between them. It is also worth thinking about whether you really need the money. If you decide not to spend it then you will not need to borrow or use up your savings.

Another alternative could be a different type of loan. It is worth comparing the cost because an overdraft can be an expensive way to borrow money. You may find that there are other loan types which will still suit your needs but that will be a lot cheaper. It is good to do some research because you could end up saving a significant amount of money.

Is it necessary?

Once you have considered the costs, availability, effect on your credit score and alternatives you will be in a position to decide whether you should get an overdraft. It is worth spending time doing this research as if you rush into getting one then you could regret it. You may wish that you had never had one at all or you might notice that there are better and/or cheaper alternatives that would have suited you much better. If you find the whole thing too confusing then discuss it with someone else. Choose a friend or family member that is good with figures and they should be able to help you with the calculations and comparisons and also with the reasonings as to what option will be best for you. As they are not emotionally involved in the decision, they might be able to find it easier to apply logic.


Leave a Reply

Your email address will not be published. Required fields are marked *