An overdraft is a service a bank may offer you on your account that allows you to spend more money than you have. The bank mate then charge you a certain percentage (interest) every day for the amount borrowed. You will be expected to pay back the amount you have borrowed plus any interest and/or fees for using the service.
When you have an overdraft, every time money goes into your account, it pays the overdraft off first. Therefore, you will have less of your money to spend, making you more likely to use your overdraft again.
As a student, some banks may provide accounts that give you a free overdraft up to a certain amount. This means that you will not get charged any interest or fees for the money you borrow. But you will eventually have to pay the amount back.
If you regularly spend more than your agreed overdraft limit, your credit history may be affected. This could cause issues if you want to request a loan in the future.
Know before you go
- If you go into your overdraft, be aware that it can be very hard to get back out.
- Keep track of all your transactions and don’t go over your arranged limit.
- If you think that you would need to use or extend your overdraft, (i.e. use more than you and the bank have agreed), speak to your bank.
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