Financial Tips: The Different Types Of Overdrafts


Overdrafts can be quite a controversial topic, some see the benefits they can reap, whereas others find the idea of borrowing money from a bank as a negative option. Depending on your opinion, we believe there are definitely some positives and negatives of using overdrafts. If you are considering adding an overdraft onto your bank account, you should consider the different types of overdraft available and if you have any other emergency options like payday loans direct lenders

What are the different types of overdrafts?  

There are two main types of overdraft, the authorised and the unauthorised. The authorised bank overdraft is set up in advance, between the bank and the account holder. You will agree to a limit with this type of overdraft and the money can be used for any payment method. If you are applying for an authorised overdraft, you should check the terms and conditions as there will be a service fee and this varies from bank to bank. You might come across daily service charge fees, but some banks charge by weeks or months and look out for an interest charge as well.  

The other type of overdraft is an unauthorised overdraft, with this option you will not agree on a set amount for your overdraft. If the account holder did make an agreed overdraft amount and spends over this, they will go into the unauthorised overdraft. You may also come across these overdrafts named as planned and unplanned, instead of authorised and unauthorised.  

Advantages of getting an overdraft  

An overdraft can be advantageous if you are waiting to get paid and you have run out of money, you will unlikely get charged much if you use an overdraft for a few days while waiting to get paid. However, some would prefer to take out a payday loan option, this is usually only recommended in emergency circumstances if you are able to pay it back from your next paycheck. Do make sure you check any interest and service charge fees before applying for either.  

Disadvantages of using an overdraft  

There are some positives you can focus on when using an overdraft, but it would be ignorant to ignore the negatives. Once you have an overdraft and get comfortable with using it, you might get into a habit of having it there and boosting the maximum amount if it doesn’t seem like a lot. When it comes around to paying it back off, this could be a problem for you.  

If you are only borrowing a small amount of money and the service fee or interest fee is high, it might be worth looking for different options instead of using an overdraft, as you could end up spending more than it’s worth. If you do end up going for an overdraft, it’s best to get an authorised one so you know exactly how much you can spend, and definitely avoid going into an unauthorised overdraft as you could incur huge charges.  

Now you know the different types of overdrafts and the advantages and disadvantages of both, you can weigh up your options and make a choice as to whether you need to borrow some extra money or not.  

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