Is it Wise to go Overdrawn?

Many of us have an overdraft facility with our current account. This means that we have an allowance where we can spend more money than we have up to a certain threshold. This is usually already organised for us (although it is wise to check this) and means that whenever we need it we will be able to use it. It can be very convenient but is it wise to use it?


An overdraft can be a pretty costly way to borrow money. You will get charged interest on what you owe and probably a fee as well. Banks and building societies do vary a lot in how much they do charge though. It is certainly worth being aware of what the costs will be to you as you will then be able to judge whether you are prepared to pay them. It is worth remembering that the interest will probably be charged daily until the overdraft is cleared and so the entire cost will be determined by how long you take to repay it. However, there is likely to be a charge which could be monthly, so if you pay it off quickly or slowly during the course of that month it will make no difference to that charge but if you keep it outstanding for too long, then you will be charged again.


Once you have an overdraft it is repaid in a unique way compared to other debt. As soon as money is put into that particular account, it will be used to repay the debt. This means that there are no regular repayments or things like that but it will just repay automatically. This means that some people will avoid putting money in those accounts as it gets swallowed up and they cannot spend it. However, this will mean that they will continue to be charged interest and fees on the debt. It is therefore much better to try to repay it as quickly as you can so that you can avoid this. You may need to think of a way to find some extra money if you go into debt and are not due to be paid for a while. This can be tricky, but there might be ways that you can earn a bit more. You might be able to take on some temporary work, do some freelance work or other jobs to bring in a bit extra It might even be worth considering taking out a different type of loan to pay off the overdraft which will be cheaper.


As overdraft are expensive and get repaid automatically, they may not be the best way of borrowing for you. It is worth thinking about whether you might be better off using a loan where you have a lower interest rate and can pay it off in smaller instalments across a longer time period. Not only could this be easier to manage and cheaper, but it could make you feel more in control of your finances. Of course, all borrowing should be thought about hard and you should decide whether it is even necessary to borrow at all or whether you will be better off saving up for the item or being more frugal with your spending. As long as you are aware of the costs of the loan and how you are expected to repay it, then you are in a good position to decide whether it is right for you. Accidently going overdrawn and then having to cope with the cost and repaying it can be difficult and therefore it is wise to make sure that you are always aware of what you are spending and how much money you have, so that this does not happen.

Therefore, it can be worth deciding carefully whether an overdraft is right for you. Whether it is wise to go overdrawn is really a very personal decision and it will be hard to know what might be the best thing to do. However, if you research all of your different options then this should help you to be able to come up with the best possible solution for you. As we are all different and our financial situations differ then it can be really difficult to come up with an answer as to whether overdrafts are right for everyone or not right for everyone. It is very dependent on that person’s situation. So, it will be up to you to decide whether you think that it will be a good idea for you. You will need to think about all of your options and cost it out and then you will be able to choose whether you think it is worthwhile, whether there is a better loan option or whether you are better off not borrowing at all.