{"id":463369,"date":"2022-08-31T20:30:54","date_gmt":"2022-08-31T19:30:54","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=463369"},"modified":"2026-02-23T16:16:08","modified_gmt":"2026-02-23T16:16:08","slug":"overdraft-vs-credit-card","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/credit-cards\/overdraft-vs-credit-card","title":{"rendered":"Overdraft or credit card: Which is better to borrow money?"},"content":{"rendered":"<p>Credit cards and overdrafts are both popular ways to borrow money. However, they work in different ways, have slightly different uses and each has its own list of pros and cons. Our guide aims to help you choose which one could work for you.<\/p><h3>How credit cards work<\/h3><p>A credit card is a flexible credit line that enables you to borrow funds up to your agreed credit limit as required. Your provider decides your credit limit based on factors like your credit history and income. Credit limits tend to range between \u00a3500 and \u00a312,000.<\/p><p>Your credit card provider sends you a bill each month to show you how much you owe, and you\u2019ll then need to make at least the minimum payment. This will typically be 1% of your balance, plus that month\u2019s interest, or a fixed sum of \u00a35, whichever is greater. <\/p><p>If you pay off your balance in full each month, you won\u2019t pay any interest. If you don\u2019t, interest is usually charged on the remaining balance. However, some cards offer 0% introductory deals, allowing you to avoid paying interest for a number of months.<\/p><h3>What type of borrowing is a credit card suitable for?<\/h3><p>Different credit cards are designed for different purposes. Some enable you to spread the cost of \u201cbig ticket\u201d items interest-free, but you can also use a credit card for everyday spending and pay off the balance in full each month. If you do this, it\u2019s worth looking for a credit card with rewards or cashback. <\/p><p>Other credit cards let you shift over debt from an existing credit card and pay it off more cheaply.<\/p><h3>Credit card pros and cons<\/h3><div class=\"fin-pros-cons\">\n            <div class=\"fin-pros-cons__section\">\n            <h4 class=\"fin-pros-cons__heading\">Pros<\/h4>\n            <ul class=\"icon-list icon-list--check-circle\">\n                                    <li>You can borrow money for purchases, and as long as you repay the balance in full each month, you won\u2019t pay interest.<\/li>\n                                    <li>You might be able to take advantage of a 0% deal, helping you to spread the cost of a purchase or repay existing debt more cheaply.<\/li>\n                                    <li>Credit card purchases over \u00a3100 (and less than \u00a330,000) are protected by section 75 of the Consumer Credit Act. This means your card provider is jointly liable with the retailer if something goes wrong, and you should get your money back.<\/li>\n                                    <li>Credit card limits are usually higher than overdraft limits.<\/li>\n                                    <li>You might be able to earn rewards such as air miles or cashback.<\/li>\n                            <\/ul>\n        <\/div>\n    \n            <div class=\"fin-pros-cons__section\">\n            <h4 class=\"fin-pros-cons__heading\">Cons<\/h4>\n            <ul class=\"icon-list icon-list--x-circle\">\n                                    <li>Interest rates can be high if you don\u2019t pay off your balance in full each month.<\/li>\n                                    <li>Cash withdrawals are expensive \u2013 as well as being charged a fee, you will also be charged interest from the date of the transaction.<\/li>\n                                    <li>The best deals are reserved for those with excellent credit scores, so if yours isn\u2019t up to scratch, you could be rejected or pay a higher interest rate.<\/li>\n                                    <li>If you don\u2019t make your repayments on time, you can harm your credit record.<\/li>\n                                    <li>It can take a few days for your credit card to arrive, so you won\u2019t always be able to spend straight away.<\/li>\n                            <\/ul>\n        <\/div>\n    <\/div>\n<h3>How overdrafts work<\/h3><p>An overdraft enables you to borrow money through your bank account. It works by letting you spend more money than you have in your account, which can be useful if you need a little extra to cover unplanned expenses. Your overdraft limit could be between \u00a3250 and \u00a32,000, for instance.<\/p><p>However, an overdraft is still a type of loan and must be repaid \u2013 with interest added. There are 2 types of overdrafts: arranged and unarranged. Arranged overdrafts are those you\u2019ve pre-agreed with your bank, while unarranged overdrafts are when you spend more money than you have in your account without arranging it with your bank in advance.<\/p><p>New rules introduced in April 2020 mean that banks can no longer charge higher fees for unarranged overdrafts than arranged overdrafts. Instead, banks must charge a single annual interest rate to make it easier for consumers to compare charges. Interest rates now sit in the region of 19\u201340%, with most at the upper level.<\/p><h3>What type of borrowing is a credit card suitable for?<\/h3><p>An overdraft can be useful for last-minute purchases or cash withdrawals. You can also use an overdraft to pay direct debits and standing orders. <\/p><h3>Overdraft pros and cons<\/h3><div class=\"fin-pros-cons\">\n            <div class=\"fin-pros-cons__section\">\n            <h4 class=\"fin-pros-cons__heading\">Pros<\/h4>\n            <ul class=\"icon-list icon-list--check-circle\">\n                                    <li>Unlike a credit card, you can use an overdraft to pay direct debits and standing orders as well as to withdraw cash.<\/li>\n                                    <li>You can repay the debt as and when you can \u2013 there are no monthly repayments.<\/li>\n                                    <li>They are quick to apply for \u2013 in fact, you\u2019ll often get one automatically when you apply.<\/li>\n                            <\/ul>\n        <\/div>\n    \n            <div class=\"fin-pros-cons__section\">\n            <h4 class=\"fin-pros-cons__heading\">Cons<\/h4>\n            <ul class=\"icon-list icon-list--x-circle\">\n                                    <li>Interest rates can be very high, making it expensive.<\/li>\n                                    <li>You usually can't borrow as much as you can with a credit card.<\/li>\n                                    <li>Because there are no fixed monthly repayments, it can take you a long time to repay.<\/li>\n                                    <li>Your bank can take your overdraft away at any point.<\/li>\n                            <\/ul>\n        <\/div>\n    <\/div>\n<h3>What is the difference between an overdraft and a credit card?<\/h3><p>One of the key differences is the time it takes to access your funds. If you already have a current account, you can often get approved for an overdraft the same day or the following day. By contrast, if you apply for a credit card and are accepted, you\u2019ll usually need to wait a few days to receive your card and PIN in the post. <\/p><p>However, credit cards usually enable you to borrow a larger sum than an overdraft, so they can be more useful if you need to pay for big-ticket items. Credit cards also offer purchase protection; overdrafts don\u2019t. <\/p><p>On the whole, overdrafts are best for short-term borrowing, while credit cards can be used over a longer period of time.<\/p><h3>What to consider when choosing an overdraft or a credit card<\/h3><p>If you\u2019re choosing between an overdraft or a credit card, it\u2019s worth asking yourself the following questions:<\/p><ul><li><strong>How much do you need to borrow?<\/strong> You can typically borrow sums of up to \u00a33,000 or \u00a34,000 with a credit card, but if you have a good credit history and high income, you can borrow even more. By contrast, you might only be able to borrow \u00a3500 to \u00a32,000 with an overdraft.<\/li><li><strong>How soon do you need the funds?<\/strong> Getting approved for an overdraft is generally much faster than applying for a credit card. You can often have the funds in your account in a matter of hours.<\/li><li><strong>What are you using the money for?<\/strong> Remember that with a credit card, you get valuable purchase protection which can be useful when paying for a holiday or buying furniture, for example. However, if you\u2019re paying a bill, some providers charge a fee if you use a credit card for the payment, so an overdraft will be more suitable.<\/li><li><strong>Will you be withdrawing cash?<\/strong> It\u2019s best not to withdraw cash on a credit card as you will usually be charged a fee plus interest.<\/li><li><strong>How much interest will you be charged?<\/strong> Interest rates on overdrafts are generally higher than on credit cards.<\/li><\/ul><h3>Examples:<\/h3><h4>Scenario 1<\/h4><p>Sam is looking to pay for a holiday to Greece and wants to spread the \u00a32,500 cost over several months. He already has an overdraft on his bank account, but it charges a high rate of interest. Instead, he decides to apply for a 0% purchase credit card which lets him spread his payments over 18 months interest-free. He pays off \u00a3140 a month and has cleared the debt by the time those 18 months are up. <\/p><h4>Scenario 2<\/h4><p>Cathy needs to pay for some unexpected repairs to her car, which cost \u00a3500. Payday is still a week away, and she needs the funds fast, so she speaks to her bank about an arranged overdraft. The bank agrees to give her a \u00a31,000 overdraft, and she receives the funds the same day. She repays the money once her salary has been paid into her account.<\/p><h3>Frequently asked questions<\/h3><ul class=\"luna-accordionGroup accordionGroup\"><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000000\" data-toggle=\"collapse\" data-target=\"#accordion0000000000\">\n        <span class=\"luna-accordion__title\">Is interest on overdrafts higher than credit cards?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000000\" data-accordion=\"details\">\n    <div class=\"accordionContent\">Yes, in many cases, the interest rate on overdrafts is higher than on credit cards, with many lenders charging around 40%. However, this depends on the product and the lender.<\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000001\" data-toggle=\"collapse\" data-target=\"#accordion0000000001\">\n        <span class=\"luna-accordion__title\">Does an overdraft hurt your credit?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000001\" data-accordion=\"details\">\n    <div class=\"accordionContent\">An overdraft could hurt your credit rating if you exceed your overdraft limit or do not repay it. The same applies if you regularly use an unarranged overdraft, as this suggests to lenders that you\u2019re struggling to manage your finances. <\/p><p>However, if you use an arranged overdraft sensibly and regularly pay it off, your credit score could improve.<\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000002\" data-toggle=\"collapse\" data-target=\"#accordion0000000002\">\n        <span class=\"luna-accordion__title\">Can I transfer an overdraft to a credit card?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000002\" data-accordion=\"details\">\n    <div class=\"accordionContent\">No, you can\u2019t transfer an overdraft to a credit card. However, you can use a money transfer credit card to move funds from your credit card straight into your bank account. You can then use these funds to pay off your overdraft, and you\u2019ll need to make monthly payments to your card provider. If you choose a money transfer card with 0% interest, you won\u2019t pay any interest for several months. Just watch out for the transfer fee, which is usually around 3\u20134%.<\/div>\n  <\/div>\n<\/li><\/ul><article class=\"luna-card luna-card--alt\"><div class=\"luna-card__block has-padding-small\">We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms \"best\", \"top\", \"cheap\" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our <a href=\"https:\/\/www.finder.com\/uk\/terms-of-use\" class=\"fin-text-navy\">terms of use<\/a>. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables is provided by Defaqto. In other cases, Finder has sourced data directly from providers.<\/div><\/article>","protected":false},"excerpt":{"rendered":"<p>Discover more about how credit cards and overdrafts work to see which option is best for you.<\/p>\n","protected":false},"author":1047,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"apple_news_api_created_at":"","apple_news_api_id":"","apple_news_api_modified_at":"","apple_news_api_revision":"","apple_news_api_share_url":"","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"","apple_news_slug":"","apple_news_sections":[],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":""},"categories":[2112],"tags":[],"asset_tag":[],"class_list":["post-463369","post","type-post","status-publish","format-standard","hentry","category-credit-cards"],"apple_news_notices":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.9 (Yoast SEO v24.9) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Overdraft or credit card: Which is better to borrow money? | Finder UK<\/title>\n<meta name=\"description\" content=\"Debating whether a credit card or overdraft is better for you? 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