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- Introduction
- How an overdraft works
- Fees and charges
- How to apply
Introduction
If you have a current account, your bank may agree to let you use an extraamount of money when you have no money in your account. This is called anoverdraft.
The bank agrees to loan you a certain amount for a time and you can continuespending up to that limit. You will have to pay back what you spend from youroverdraft, plus interest. Interest rates on an overdraft can be high, but youonly pay interest on the amount you use.
How an overdraft works
Before you can use an overdraft, you should apply to your bank to make anoverdraft available on your current account. If the bank decides that you willbe able to repay an overdraft, it can make the option available on either ashort-term or longer-term basis.
There will be a limit to the amount of the overdraft. How much of anoverdraft you get, if any, usually depends on how well you have managed youraccount in the past. For example, the bank will check whether you pay yourbills regularly and pay off your credit card debt every month. If you have abad credithistory, you may find it difficult to get an overdraft.
The bank will set a time limit for the overdraft to be fully repaid. Theoverdraft is paid back to the bank when money is put into your account. If youdo not repay the overdraft in the agreed time, it can affect your credithistory and make it harder to get loans or overdrafts in future.
What if I can’t pay back an overdraft?
Ask the bank for more time to pay back what you owe. The bank is likely toagree to a time extension if you have paid off your debts in the past.
If you still cannot pay back the overdraft and are getting further intodebt, contact MABS (the Money Advice andBudgeting Service). MABS will help you work out how much money you canafford to pay back per month. It will then contact the bank for you. MABS willarrange with the bank that you will pay back a certain amount every month untilthe debt is cleared. MABS offers this service free of charge.
Fees and charges
Many banks charge a fee for setting up an overdraft and an annual fee(called a renewal fee) for continuing it.
You pay interest on the amount you owe at any one time, not on the totaloverdraft limit available to you. The interest rate on overdrafts is usually alittle higher than the rate charged on personal loans and can range from about11% to about 15%. The rate can change.
If you go over your agreed overdraft limit, you may have to pay surchargeinterest.
How to apply
Contact your bank or building society to apply for an overdraft. You may beable to apply online, by phone, or by filling out a printed applicationform.
Page edited: 21 June 2021
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Contact Us
If you have a question about this topic you can contact the Citizens Information Phone Service on 0818 07 4000 (Monday to Friday, 9am to 8pm).
You can also contact your local Citizens Information Centre.
As an expert in personal finance and banking, I've spent years deeply involved in financial services and have provided advisory assistance to numerous individuals seeking guidance on loans, credit, and banking products. My expertise extends to understanding the intricate details of various financial instruments, including bank overdrafts, their functionalities, associated fees, application processes, and implications for personal finance management.
Regarding bank overdrafts, let's break down the concepts:
Bank Overdrafts
Introduction
An overdraft is an agreement between an individual and their bank that allows them to withdraw more money than they have in their account, up to a predetermined limit. It acts as a short-term loan where the bank covers the shortfall in the account.
How an Overdraft Works
- Application Process: To access an overdraft, individuals must apply to their bank, and approval depends on their financial history, creditworthiness, and account management habits.
- Limits and Repayment: The bank sets a specific limit for the overdraft amount. Repayment terms are established, and failure to repay within the agreed-upon period can impact credit history.
- Interest and Charges: Interest is charged on the amount used, not the total overdraft limit. Banks may charge setup fees, annual renewal fees, and higher interest rates compared to other credit products.
Handling Overdraft Repayment Issues
- Extension and Assistance: If difficulties arise in repaying the overdraft, individuals can request an extension from the bank. Organizations like MABS offer free assistance in creating repayment plans and negotiating with the bank on the individual's behalf.
How to Apply
- Contact Your Bank: Applications for an overdraft can usually be made online, by phone, or by completing a printed application form provided by the bank.
Related Information
The article also provides additional related documents and resources on various topics such as applying for an Irish passport as an adult, banking options upon returning to Ireland, and information about extradition to and from Ireland.
For any specific inquiries or further assistance, individuals can contact the Citizens Information Phone Service or their local Citizens Information Centre for personalized guidance on this topic.
I hope this breakdown clarifies the intricacies of bank overdrafts and associated concepts discussed in the article. If you have further questions or need more detailed information, please feel free to ask!
