A personal overdraft lets you borrow money directly from your everyday account, only paying interest on what you use.
Compare overdraft costs carefully. Interest rates can vary widely, and monthly fees may apply even if unused.
If you're looking for a structured repayment plan, consider a personal loan instead of an overdraft.
What is a personal overdraft?
An overdraft can be a convenient option if your account occasionally slips into the red, or if you're after credit to use as and when you need it.
Personal overdrafts are a line of credit that you can add to an everyday transaction account. Once you exhaust your available funds you'll be able to access an additional credit limit.
How does a personal overdraft work?
You can apply for an overdraft with your current bank. It'll be attached to your transaction account and allow you to spend more than you have available in your account.
You'll be approved for a set limit and be able to draw funds up to and including that limit whenever you need it. Your overdraft funds will only be accessed when the other funds in your account have been exhausted.
You may have to pay a fee to set up your overdraft and you'll pay interest on the amount you use. Once you put money back into your account you'll be able to access the total amount of your overdraft again.
Personal overdraft vs personal loan: Which is right for you?
Personal overdraft
Personal loan
How does it work?
A line of credit you can access when the funds in your transaction account run out.
You apply for a certain amount of money and repay it over a set period.
Benefits
Only pay interest for the credit you use
Flexible repayments
Use just as much of the credit limit you need
Know how much you will have to repay each month and when you will be out of debt
A good option if you are borrowing for a specific purpose
Drawbacks
Monthly fees apply regardless of whether you use it or not
You need to use all the funds in your transaction account to access your overdraft
You have to apply for a specific amount of money for a set purpose
The loan may have restrictions on how you repay it
How do I find the best personal overdraft account for me?
As with any financial choice you make, you should compare personal overdrafts in order to get the best deal possible. You’ll also want to pick the best loan for your personal financial situation.
Do you already have an account with the lender? You will need to have a transaction account with the provider to get a personal overdraft. If you don't have an account already you will need to set one up, so you'll need to take this into account.
How much will it cost? Fees to look out for include upfront fees such as establishment fees and ongoing fees in the form of monthly or annual fees.
What interest rate will you be charged? Since a personal overdraft is an unsecured loan, variable interest rates generally apply. Most banks only ask that you pay interest on the money you use, but you’ll still want to find the best interest rate available.
Minimum requirements. Some lenders may set a minimum requirement for how much your personal overdraft loan should be. Compare your options so you don't take out a higher credit limit than you need.
Application process. If you’re the type of person that is looking for a simple enrolment process you’ll want to examine all of your options to find the simplest one for you.
Compare personal lines of credit
We don't have any personal overdrafts available for comparison, but you can compare a range of line of credit products in the table below.
We currently don't have that product, but here are others to consider:
How we picked these
Weigh up the pros and cons before you apply
Pros
You can avoid overdrawn account fees. If you find your account dipping into the red too often, an overdraft account will safeguard you against overdrawn account fees (up to your overdraft credit limit).
24-hour access. With most personal overdrafts you'll have 24-hour access to your account, and most providers will give you a debit card for convenient spending and ATM withdrawals
You only pay for what you use. You’re only charged interest for what you’re using, helping you to save.
Cons
The account comes with interest. Like any unsecured loan, personal overdrafts come with interest rates. These rates will vary from lender to lender so it’s important to compare your options to get the best deal.
Fees and charges can vary. There are also fees and charges attached to personal overdrafts. This can be anything from enrolment fees to account-keeping fees.
Is there anything you should avoid?
Overusing the account. Sometimes people overuse their personal overdrafts just because it's conveniently attached to their transaction account. If you apply for and get a personal overdraft you should make sure you only use it when it’s necessary. Most personal overdrafts just charge interest on the money you use, so make sure to use only what you need to save yourself interest payments.
Taking the first loan you see. Make sure to compare personal overdrafts based on the applied fees and charges, interest rates, and any lender requirements, in order to get the best deal that suits your personal situation.
How you can apply for a personal overdraft
You can first check with your own bank to see what kind of overdraft it offers. If the conditions aren't good enough or they charge a lot of fees or interest, you can compare other transaction accounts.
You might find that you need to be a bank customer for a while before they'll approve an overdraft, but that can depend on the bank.
Once you've compared the personal overdrafts available you can start the application process. Each bank or lender will have its own application process and eligibility criteria.
Generally, to open a personal overdraft you must be an Australian citizen or permanent resident with a valid Australian address. You must also be 18 or older and pass a credit evaluation to determine if you can afford the loan. That means the lender may require information regarding your employment and income as well as personal assets.
Frequently asked questions about personal overdrafts
Most banks offer personal overdrafts starting at $100.
Overdrawing your account regularly is not a good idea. You will be charged an overdraft fee each time this happens. Also, lenders may request copies of your bank statements when you apply for a loan and the overdrafts will be listed. This will affect your ability to be approved for the loan.
This can be a convenient option to consider because you need to have a transaction account to attach the personal overdraft too. However, when you compare your options you might find that your bank charges high fees or interest with its personal overdraft. Opening a transaction account is relatively simple and you have the option of holding multiple accounts so you can take advantage of offers from other banks.
Yes, you can withdraw money from an overdraft, just like you would with your regular bank balance, as long as you stay within your approved overdraft limit. The funds accessed through an overdraft are treated as a loan, so you will need to repay the amount borrowed along with any applicable interest.
A personal overdraft is a facility linked to your bank account that allows you to withdraw more money than you have in your account, up to an approved limit. It acts as providing a safety net for unexpected expenses. You only pay interest on the amount you use, making it a flexible but potentially costly form of credit.
Yes, a personal overdraft can affect your credit score. Regularly using your overdraft or exceeding your limit can signal financial instability, potentially lowering your credit score. However, responsibly managing your overdraft, such as repaying it promptly, can help maintain or even improve your credit score.
The key difference between a personal loan and a personal overdraft is how the funds are accessed and repaid. A personal loan provides a lump sum that is repaid in fixed installments over time, with a set interest rate. A personal overdraft, on the other hand, allows you to withdraw funds as needed, up to a limit, with interest charged only on the amount used. Personal loans are better for planned expenses, while overdrafts are suited for short-term, flexible borrowing.
Yes, you have to pay back the amount you borrow using an overdraft. The bank will expect you to repay the overdraft amount along with any accrued interest and fees. Failing to repay an overdraft can lead to additional fees, increased interest and potential damage to your credit score.
Sources
Picture: Shutterstock
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i don’t have enough $$ available for a redraw on my personal loan, if i transfer the difference from my complete freedom account to my personal loan will i be able to redraw then?
Finder
ElizabethSeptember 8, 2016Finder
Hi Renee,
As long as you make some sort of additional repayment to your personal loan you will be able to redraw that amount (providing your personal loan offers this).
If you're wanting to bolster your application, buy an asset with your partner or apply for a loan you're not eligible for by yourself, you can consider a joint application personal loan.
Find a low interest loan by comparing your options with Finder. See interest rates, fees, and features for loans across Australia, plus guides to help you get the best deal.
Find out exactly what you need to know when it comes to cheap personal loans, including working out if a loan is really competitive.
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Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest. 
Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.
i don’t have enough $$ available for a redraw on my personal loan, if i transfer the difference from my complete freedom account to my personal loan will i be able to redraw then?
Hi Renee,
As long as you make some sort of additional repayment to your personal loan you will be able to redraw that amount (providing your personal loan offers this).
Hope this helps,
Elizabeth