Can anyone explain how an overdraft works?

SandA

Hello

I have recently found that I can apply for an overdraft of up to £750, having a small family this would be very helpful as were often running for help of family and they are quickly getting fed up.

I really don't understand how they work. I'm with Barclays and have a normal, bog standard account. This is what it says :

Barclays Bank Account 1.49% per month,
typical 19.3% EAR (variable)

I don't understand what that means? does it mean, if I was to go 200 into my overdraft, as long as the money is put back in before 1 month, the apr would be 1.49 and therefore around 203 would be repayable? I'm sorry if i have that wrong, im new to all of this stuff.

Also, would there be any fee for me having an overdraft, I can't find it saying there would be, but I know how much these banks try to bully people into paying fees to have certain features.

I'm a real dummy with this, so can anyone explain in dummy terms before I apply?

Thanks

Tixy

An overdraft is calculated on a daily basis based on the balance each day. If your overdraft balance was exactly £200 for a whole month, then yes the interest you would pay would be around £3, which would usually be charged the following month.

A lot of overdrafts do not have charges to set them. Some accounts do do charge fees or a review fee, but that would be detailed in the terms. If nothing is detailed its likely to have no charges for setting it up.

Just as a word of warning - overdrafts are great for getting over small emergencies/occasional use, but its best not to get into the habit of using it every month. And be very careful of slipping further into the overdraft every month, if you end up doing that then you are spending more than you have coming in, and you would soon reach the limit of the overdraft.

CLAPTON

SandA wrote: »

Hello

I have recently found that I can apply for an overdraft of up to £750, having a small family this would be very helpful as were often running for help of family and they are quickly getting fed up.

I really don't understand how they work. I'm with Barclays and have a normal, bog standard account. This is what it says :

Barclays Bank Account 1.49% per month,
typical 19.3% EAR (variable)

I don't understand what that means? does it mean, if I was to go 200 into my overdraft, as long as the money is put back in before 1 month, the apr would be 1.49 and therefore around 203 would be repayable? I'm sorry if i have that wrong, im new to all of this stuff.

Also, would there be any fee for me having an overdraft, I can't find it saying there would be, but I know how much these banks try to bully people into paying fees to have certain features.

I'm a real dummy with this, so can anyone explain in dummy terms before I apply?

Thanks

it's a very bad idea to use an overdraft if you are often running to family for help; they are OK for the truely occasional emergency but otherwise they will suck you in and you will soon find you an debt of 750 and you are still needing to ask the family for help

I don't know your full circumstances but you need to budget better and not go into debt.

It's essential to establish a small savings buffer so you don't need to borrow

maybe post on the debt free wannabe board and ask assistance to help with budgeting.

DCFC79

Going into your OD should be a last resort(an emergency is ok but not as a regular thing), if your often asking family for help then using your OD isn't the wya to go. Ill take a guess that your outgoings exceed your income.

SandA

I probably described my circumstances differently to what they are. We do go to our family occasionally, when were short the odd £10 for a bill. We arent bill junkies by any means, but sometimes found ourselves slightly short a few days before paydays etc.

DCFC79

SandA wrote: »

I probably described my circumstances differently to what they are. We do go to our family occasionally, when were short the odd £10 for a bill. We arent bill junkies by any means, but sometimes found ourselves slightly short a few days before paydays etc.

Still a reason to go over to the dfw board and post an soa, sounds like your sailing close to the wind.

Tixy

In that case then an overdraft is ideal for those occasional instances - the thing is not to get into the habit of thinking its 'your' money, so many people fall in to that trap (I used to myself).

As Clapton says through, a small savings account so you can effectively borrow from yourself in an emergency is even better than an overdraft, so its worth trying to build a small fund up. Perhaps try reworking your budget so that you should end up with even just £25 spare each month to put in a separate account.

chalkie99

Also, be aware that the availability of the overdraft is for a fixed period, typically one year, after which it will need to be renewed and, more importantly, it can be withdrawn at any time and is then instantly repayable.

As others have said, use only for emergencies and don't let it become a habit.

SandA

Yeah once Christmas is over I may start to build up some funds in my ISA. In terms of having an overdraft there for emergencies only, providing I dont go past '0' funds, I won't have to pay anything? That might sound really stupid but I'm the type to make absolutely sure before doing anything lol! and to others, I wouldn't treat an overdraft like its my money, it will be used as last resort but I think it would be helpful for emergencies so I dont have to rely on family members. Our outgoings don't exceed income, but sometimes have dilemmas like the car breaking down were an overdraft would be ideal. It would always be my intention to ensure that the money is replaced within a month, 2 at max.

Thanks for all your advice.

SandA

chalkie99 wrote: »

Also, be aware that the availability of the overdraft is for a fixed period, typically one year, after which it will need to be renewed and, more importantly, it can be withdrawn at any time and is then instantly repayable.

As others have said, use only for emergencies and don't let it become a habit.

Why would it be withdrawn before 12 months? I presume that is in circumstances such as breaking terms and conditions on my behalf / exceeding limits etc? or am I wrong.

Thanks

DCFC79

SandA wrote: »

Why would it be withdrawn before 12 months? I presume that is in circumstances such as breaking terms and conditions on my behalf / exceeding limits etc? or am I wrong.

Thanks

Depends on the terms on offer from the bank,