How UK overdraft and credit card charges work: overdraft APRs, unarranged overdrafts, interest-free periods, minimum payments, cash advances, fees, persistent debt rules and how to cut the cost.
Overdrafts and credit cards are convenient ways to borrow, but they can be expensive if used for long periods. Knowing how the charges work helps you use them cheaply, or avoid them, and spot problems early.
How overdrafts are charged?
- Arranged overdrafts: since April 2020, banks charge a single annual interest rate with no fixed daily or monthly fees, shown as an APR. Rates are often high, commonly around 35% to 40% or more.
- Unarranged overdrafts: banks can't charge more for an unarranged overdraft than for an arranged one, and most decline payments that would take you over your limit. Returned payment fees may apply.
- Interest-free buffers: some accounts offer a small interest-free amount. Student and graduate accounts often have larger interest-free overdrafts.
What an overdraft costs?
Being £500 overdrawn for a month at 39.9% APR costs roughly £14 to £15. That's cheap for a short emergency, but staying overdrawn all year costs about £170 or more. Overdrafts are repayable on demand, and banks can reduce your limit.
How credit cards are charged?
- Purchase interest: if you pay your full balance by the due date, you usually pay no interest on purchases. If not, interest is charged, often back to the purchase date.
- Introductory offers: 0% periods on purchases or balance transfers. Balance transfers usually have a fee, often 2% to 4% of the amount.
- Cash advances: withdrawing cash usually incurs a fee and a higher interest rate charged immediately, with no interest-free period. Gambling transactions may also count as cash.
- Foreign transaction fees: many cards charge around 3% on spending abroad.
- Late and over-limit fees: typically capped at around £12 by industry practice. Missing a payment can also end promotional rates and harm your credit file.
The minimum payment trap
Paying only the minimum keeps your account in good standing but can take many years to clear the balance and cost far more in interest. Paying a fixed amount above the minimum each month makes a large difference. Statements must show how long repayment would take at the minimum.
Persistent debt rules
Under FCA rules, if you've paid more in interest, fees and charges than you've repaid of the balance over 18 months, your card provider must contact you and encourage you to pay more. After 36 months in persistent debt, it must offer you a way to repay the balance over a reasonable period. It may suspend your card if you don't respond.
Ways to cut the cost
- Set up a direct debit for at least the minimum, ideally the full balance.
- Move expensive debt to a 0% balance transfer card, if you can clear it in the promotional period.
- Use a cheaper personal loan for larger, planned borrowing.
- Clear the most expensive debt first (the "avalanche" method), while paying the minimum on others.
- Move direct debits to after payday to avoid regular overdraft use.
- Set balance alerts in your banking app.
- Avoid cash withdrawals on credit cards.
Effects on your credit file
Lenders look at how much of your available credit you use and whether you pay on time. Regular overdraft use and high card balances may count against you; on-time payments and lower balances help.
If you're struggling
Contact your bank or card provider early: they must treat customers in financial difficulty fairly, which may include reducing or freezing interest. Free, confidential debt advice is available from MoneyHelper, StepChange, National Debtline and Citizens Advice. Avoid paid debt management firms that charge fees for help you can get for free.
Buy now, pay later
Many BNPL plans are interest-free but can charge late fees and may be reported to credit files. Since 15 July 2026, third-party BNPL lenders are regulated by the FCA, with affordability checks and access to the Financial Ombudsman; agreements taken out before that date remain unregulated. Treat it as borrowing.
Frequently asked questions
Is it cheaper to use an overdraft or a credit card?
It depends on the rates. A card used within its interest-free period is usually cheapest; a 0% offer can be cheaper than an overdraft for a few months.
Will a balance transfer hurt my credit score?
The application involves a hard search, but paying down debt can improve your position over time.
Sources and further reading
Facts checked on 20 October 2026. Spotted an error? Tell us and we will correct it.