The consequences of going overdrawn on your bank account depends on whether you have an existing agreed overdraft. If you don't have an overdraft facility on your account and you go overdrawn, or you exceed an agreed overdraft limit, you will be charged. You will not be arrested simply for having an overdrawn bank account, but if you are writing bad cheques i.e. writing cheques in the knowledge that you don't have the required funds in your account, you could be charged with fraud.
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If you need to take more cash out of your account than is there, you can request an overdraft from your bank. Every bank or building society offers different types of overdraft. You may be offered a fixed amount for a set period, such as £1,000 to be paid back within 12 months, or you may be set an overdraft limit on an ongoing basis. The bank charges interest every day on the amount you are overdrawn. Another possible charge is a one-off administration or arrangement fee when the overdraft is set up; the amount varies between lenders. After you set up the overdraft, your bank will confirm the arrangement in writing. Keep this information in a safe place. If you go over your agreed overdraft limit, you will incur additional fees and interest. Again, fees vary depending on your particular lender.
An unauthorised overdraft is when you go overdrawn without having an agreement in place with your bank. You will be charged a daily fee and a far higher interest rate than if you had an agreed overdraft. You will also be charged for any unpaid items, such as cheques you write and direct debits from your account.
Paying off an overdraft
If you are struggling to pay off your overdraft, arrange an appointment with an adviser at your bank to talk about your situation. Under the terms of The Lending Code (see Resources below), you should be treated with sympathy. Your bank may be able to help you form a repayment plan in line with your budget, monthly income and outgoings. You can also seek free advice from your nearest Citizens Advice Bureau.
To avoid going overdrawn, keep a record of all monthly outgoings and when these fall due, including when any direct debits and standing orders are taken from your account. Make a written record of any cheques you write and cash you withdraw. Check your account balance regularly and read your bank statements as soon as you receive them. If it looks like you are going to go overdrawn or over your agreed overdraft limit, contact your bank straight away to ask for an extension.
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