Help me understand overdrafts...

paulmcerlean

Look I know this may sound stupid to some people, but I dont understand a few things about overdrafts.

Firstly - bank gives you an overdraft and you use it, in my case, I used £200 of my £1000 overdraft with Lloyds last month.

Does this mean your are running your account badly? Surely you are using a short term lending facility they provide and should not be seen as bad management of an account?

If it is bad management of an account - how do people then end up with 2K, 3K 4K + when their overdraft is reviewed? Surely you have to be in it to get a bigger one? And why would they expose you to more risk if using it is bad?

I am confused by this:

Basically I opened my Lloyds account at the start of the year. It is my main account, Salary in, DD's out etc...

Used £200 ish of my overdraft, cleared it back to four figures when my salary went in on the 31st. This month Lloyds wont offer me !!!!. Where last month I could upgrade my account to Sliver, Gold etc... this month I cant do anything online.

CashFlow on the forum has provided me with good response on this about not having much history with the bank - but other than this, I have no bad debt and my file is clean.

It just seems very extreme and I didnt realise using the OD caused a negative reaction from the bank.

Thoughts?

Lokolo

Overdrafts are shorterm things. Usually for a bad month or 2 with cashflow. They should not be relied upon as if banks think you are abusing them they will withdraw and demand immedidate repayment.

People end up getting bigger overdrafts because the system allows them too. Good credit score mean syou can just apply and apply. Obviously there are limits though.

If you are constantly going in and out then it is bad financial management, usually. If you go in one in a blue moon then it's fine, but savings are usually the better option.

Consumerist

Running an authorised overdraft is not bad management of the account from the bank's point of view. Running an unauthorised overdraft, however, is frowned on.

Banks have been very active with their "risk assessment" policies lately and it's probable that you have been re-assessed. You are a relatively new customer and are therefore more likely to be re-assessed if the bank gets nervous.

Don't forget that banks are under no obligation to give you any overdraft facilities at all.

From a personal point of view, if you need an overdraft then you ought to consider whether you are living beyond your means.
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