What is an overdraft?


An overdraft allows you to borrow money using your current account, so you can spend more money than is in your account.
 

How does an overdraft work?

Arranged overdrafts

Arranged overdrafts are pre-arranged with your bank – you can apply for one either when you set the account up or once it’s already open. It has a limit that you can borrow up to if there isn’t enough money in your account.

You will likely be charged interest for using an arranged overdraft. However, some providers may offer an arranged overdraft with an interest-free amount, so you’ll only pay interest if you borrow more than that amount.

Unarranged overdrafts

If you don’t have an arranged overdraft and you try to spend more than is in your account, your bank may allow you to use an unarranged overdraft. Your bank might also let you use an unarranged overdraft if you try and make a payment that would take you over your arranged overdraft limit.

You may have to pay interest charges if you use an unarranged overdraft depending on your provider. Depending on the circumstances, your bank may decline payments rather than allowing you to use an unarranged overdraft.

What is an arranged overdraft limit?

If you apply for an arranged overdraft, you’ll be given a limit which is the pre-arranged amount of money you can borrow from the bank if you don’t have enough in your account. You can decrease your arranged overdraft limit and may be able to apply to increase it if you need to.

Does an overdraft affect your credit score?

Having an arranged overdraft and managing it well is unlikely to have a major impact on your credit score.

However, if you don’t regularly pay it off or you have payments declined, then your credit score could go down.

As overdrafts are a form of borrowing, providers will sometimes do a credit check before you’re accepted. If they do a hard credit check, this could affect your credit score if you’re declined.

Learn more about how credit scores work.

Frequently Asked Questions

 

  • If you need to use your arranged overdraft, you will usually be charged interest for doing so. Some providers may offer an arranged overdraft with an interest-free amount, so you’ll only pay interest if you borrow more than that amount.

    You can use our overdraft cost calculator to get more of an idea of how much it could cost if you have a Lloyds Bank arranged overdraft.

    We also offer a grace period on charging interest. This means that if you use your arranged overdraft but pay it back before midnight the same day, then you won’t pay interest for that day.

  • At Lloyds Bank, if a payment is going to take you over your arranged overdraft limit, we may stop the payment going through.

    This could mean your mortgage, rent or other scheduled payments may not be paid, and some suppliers may charge you fees for missing those payments.

    Depending on the circumstances, we may allow you to use an unarranged overdraft if you go over your limit.  If you think you might go over your arranged overdraft limit, please contact us.

    Other providers may do things differently if you go over your arranged overdraft limit.

  • Not paying back your arranged overdraft may lead to large interest charges. If you can’t pay it back, your provider may withdraw your arranged overdraft and ask for full repayment. This could also affect your credit score.

    If you’re struggling to pay off your Lloyds Bank overdraft, then we may be able to help you.

    Your provider may decline transactions if you try to go over your arranged overdraft limit.

    Find support for money worries.

  • Arranged overdrafts, credit cards and loans all have different benefits depending on what you want to use them for.

    For example, a loan might be more suitable than an arranged overdraft to pay for larger purchases, such as a car or home improvements.

    Look at how much interest you would pay, when you need to make repayments and whether any fees will be charged. This will help you get an idea of the overall cost of borrowing.

    Learn more about choosing an arranged overdraft, credit card or loan.

Useful tools

Arranged overdraft cost calculator

You can use our calculator to work out how much an arranged overdraft may cost over different periods of time.

Cost Calculator

Arranged overdraft eligibility tool

You can also check to see if you might be accepted for an arranged overdraft by using our eligibility tool.

Eligibility Tool

Apply for a Lloyds Bank arranged overdraft

Learn more about applying for a Lloyds Bank arranged overdraft, whether you’re a new customer or you already bank with us.

Overdrafts