What is a student overdraft?

Student using their credit card to buy food

A student overdraft (much like a ‘normal’ overdraft) is effectively a mini loan designed to see you through times when you need a little extra cash to make ends meet. It allows you to withdraw more money than is in your account.

Overdrafts are great for students, as part-time work can come and go as academic work picks up, and there may be times when you need help with your finances.

For standard overdrafts, you may be expected to use your salary to pay back the amount you’ve spent, or you’ll incur charges.

If you have an agreed - also known as authorised - overdraft, this means that there is a set amount you can dip into without further charges. You’ll avoid the charges as long as you pay this back within a set monthly period.

An unauthorised overdraft is when money is taken out beyond this agreed amount. For example, if you had a £500 overdraft and your withdrawal takes you to -£525, you can incur a penalty fee on top of this until you’re back in your agreed overdraft and you’ve paid back the extra £25.

Should I get an account with a student overdraft?

A student overdraft can help you get through the academic year without adding to further costs beyond your student loan.

It’s essentially a loan, so interest terms can apply. Getting a student overdraft with 0% interest means you’re less likely to end up with unnecessary costs to pay off.

You might also find other perks that suit you; some banks offer overdraft services that include discounts on rail travel, or other benefits such as food or shopping vouchers, or cinema tickets.

How long can you have a student overdraft for?

You should be able to have a student overdraft for around two to three years.

After you graduate, your account may automatically switch to a graduate account – and you should have 2-3 years to pay back the interest-free overdraft. Your bank will pare back the interest-free limit every year. This should give you enough time to pay off the overdraft if your account terms change and you need to start paying interest charges.

It’s also worth remembering that you don’t have to stay with the same bank at the end of your overdraft term. If you find another account that has better benefits, you can switch.

How to keep your student overdraft looking healthy:

  • Don’t go over the agreed overdraft limit. If you do, you can expect to pay daily charges until you replace the money you’ve taken out. However, you should avoid charges if you have a 0% interest overdraft and you stay within your limit.
  • Don’t feel like you have to take out other products with your bank, such as student credit cards. If you just want a standard account with a 0% overdraft, you can have one – you’re not obligated to take on any extra financial products.
  • After you finish uni, switch to a graduate account. Your bank may do this for you automatically, but if not, you may have to contact them to ask to switch your account over.
  • Shop around to see if any other banks are offering better-value graduate accounts. If you find a better bank, you can switch your account – but don’t forget you’ll have to pay off your overdraft in full first.

Does a student overdraft affect your credit score?

Your overdraft won’t affect your credit score as long as you pay it off in a timely manner.

However, if you start dipping deeper and deeper into your overdraft, and incurring extra charges, you may find that it’s harder and harder to pay off your overdraft – and you may begin to struggle with the debt.

If your bank can’t recoup the money from your overdraft and refers you onto a debt collection agency, this could affect your score – and it could remain there for several years.

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