Overdraft question!?

oscarbuster

Hi.

I have a question about an overdraft facility and I know most will think I am completely stupid for even needing to ask the question but I'd rather strangers thought of me as stupid than the bank be hounding me for money in the future.

So I opened a new Current account today with Ulster bank and was offered a £1500 overdraft. I have never had an overdraft before as previously I had declined the feature upon opening my other account.

I am aware of the interest rates etc and all of that but what I can't seem to find the answer to online is whether or not I will have to pay back whatever I use in one go?

For example- say next month I use £150 of my overdraft, will the bank then deduct £150 (and whatever interest) when my wages are paid into the account?

Or do I just pay the interest each month (If I have gone into the overdraft) and in essence only pay back the actual overdraft if and when the bank decides to call it in?

Clarification would be appreciated, thanks.

Money_maker

Normally you are charged when you are overdrawn. So once your wages go in, you are back in the black again and you are not charged unless you use it again. No idea what your bank charges but watch out for daily OD charges from some banks in addition to interest.

oscarbuster

So I am only charged the overdrawn fee per day that I am overdrawn? & They don't just take the full amount I am overdrawn by?

Thanks for the reply.

Ben8282

Your overdraft limit will be reflected in available funds.
Your overdraft limit is £1500.
If you had no money whatsoever in your account, the balance would show as £0 and available funds as £1500.
If the account was £100 overdrawn on 23rd December, balance would be -£100 and available funds £1400.
If pay-day was 24th December and your monthly pay was £2000, the balance of your account would become £1900 when your pay was received and available funds would be £3400.
You do not make any 'repayments' as such. The overdraft simply allows the balance to drop to -£1500 at any time and then go back up when money is paid in
Does that answer the question?
You will only pay interest/fees when the balance of the account is negative. Be aware that some banks may also apply a flat fee if you go overdrawn at any time during a statement period.
As an aside, I think it is good practice not to have an overdraft limit higher than monthly income so the overdraft gets paid off every month.

oscarbuster

That does answer my question, thanks very much.

I get roughly £1500 a month give or take a few pennies, so their offered overdraft does equate to my monthly salary.

I haven't decided if I want it though, I suppose I could ask them to set it at about half, so £750 incase of emergencies.

Thanks again for the help.

tiger_eyes

If your finances are generally in good order, it might be helpful to at least have the option of the overdraft. In the event that your wages are paid late (say) it could well be that funding the household bills from your overdraft temporarily is less expensive than having direct debits rejected, which could incur fees and charges. Plus using the overdraft won't affect your credit history in the same way as missed payments. I've never used the overdraft on my main bills account, but I like to know it's there.

Alternatively, if you're in the money, you could refuse the overdraft and use a float instead, ie. leaving enough money in your bills account at all times to cover the bills if your wages are late.