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Overdrafts Guide

Overdrafts are not a method for long or even medium term borrowing as they are meant to supplement your cash flow, which is why most banks will not give you high overdraft limits. A typical way to calculate an overdraft is to look at the money going through your account every month and average that for the last 6 months, then base your overdraft on that figure. If you have kept a good account and there is a compelling reason why your bank might be prepared to go outside these boundaries your overdraft could be extended but as overdrafts are intended only to ease short term cash flow problems no bank should encourage this as a method of borrowing.
Remember, overdrafts are repayable on demand and they are the sort of debt that banks don't look kindly on if canít handle them properly. Therefore you should avoid using them to borrow for longer than a month or so.

Overdrafts are more difficult to get than any other type of borrowing so the rates are normally not too bad unless they are unarranged borrowing. If you have an arranged overdraft in some circumstances it can be cheaper than a loan to service but it is not as easy to borrow high amounts.

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