Personal Overdrafts

Say goodbye to overdrawn account fees and have a convenient line of credit attached to your transaction account.


An overdraft can be a convenient option if your account occasionally slips into the red or if you’re after a line of credit to use as and when you need it. It’s 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. Find out how these accounts work in our guide below.

How does a personal overdraft work?

Personal overdrafts are a type of credit attached to an everyday transaction account. You will be approved for a set limit and be able to draw 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 but you will pay any interest on your total balance – you will only pay interest on the amount you use. Once you put money back into your account you will be able to use more credit.

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.

Personal overdraft vs personal loan: Which is right for you?

Personal overdraftPersonal 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.
  • 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
  • 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

Weigh up the benefits and drawbacks before you apply

  • 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.
  • 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 overdraft just because it is conveniently attached to their transaction account. If you apply for and get a personal overdraft you should make sure you use it only when it’s necessary. Most personal overdrafts only charge interest on the money you use, so if you make sure to only use what you need you can save yourself interest payments.
  • Taking the first loan you see. Make sure to compare personal overdrafts based on the applied fees and charges, the interest rates and any requirements, in order to get the best deal that suits your personal situation.

How you can apply for a personal overdraft

Once you compare the personal overdrafts available you can start the application process. Each bank or lender will have their own application process and eligibility criteria.

Generally, to open a personal overdraft you must meet the following requirements:

  • Be a New Zealand citizen or permanent resident with a valid New Zealand address.
  • Be 18 or older.
  • Pass a credit evaluation to determine if you can afford the loan. This means the lender may require information regarding your employment and income as well as personal assets.

Have more questions about personal overdrafts?

Picture: Shutterstock

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