Overdrafts and Debt

Not sure if an overdraft is classed as credit, or how it can impact on your credit score? Our handy guide will explain how authorised and unauthorised overdrafts, and fees, may affect your credit report and score.

At Lowell, we know how important it is to understand financial terms to avoid any misunderstanding that could result in money problems. That’s why we want to remove the stigma around having conversations related to money and debt.

If you’ve got a bank account then you’ve probably come across the term ‘overdraft’ before. But maybe you’re not sure what an overdraft means, if it’s classed as credit or how it can impact your credit score. 

In this guide, we’ll go through:

What does an overdraft mean?

Overdrafts are linked to your bank account and are a type of consumer credit. Having an authorised overdraft limit in place means that you’re able to spend more money than you have in your account – up to an agreed amount - and they are typically used as a short-term solution for unforeseen expenses.

What are the different types of overdrafts?

There are two different types of overdrafts – authorised and unauthorised.

  • Authorised overdraft –Arranged overdrafts are when you’ve already agreed on a limit that you can spend with your bank in advance, they can also be called ‘arranged’ or ‘planned’ overdrafts.
  • Unauthorised overdraft – Also referred to as ‘unplanned’ or ‘unarranged’ overdrafts, this is when you spend more than you have available in your bank without having agreed on an amount with your bank first. This also includes if you go over the spending limit of an authorised overdraft.

Both types of overdrafts include charges if you use them. If you’re not sure what charges may apply to your account, then you can contact your bank to find out.

Can an overdraft be cancelled?

You can cancel or reduce your authorised overdraft if you don’t think that you’re going to use this facility or for some other reason. However, it’s worth noting that if you do cancel or reduce it and then spend more than your account balance then you might go into an unauthorised overdraft which may be more expensive.

Also, if your bank thinks that you’re using your overdraft too often and are struggling with your finances then they might cancel your overdraft.

Is an overdraft a loan?

Since you’re borrowing money from the bank when you go into your overdraft, which is also referred to as becoming ‘overdrawn’, this does count as a form of credit or loan – aka overdraft debt.

Overdrafts work differently from other types of loans and credit cards as there is no official repayment plan sometimes referred to as a rolling credit facility. Overdrafts are repayable ‘on demand’ which means that the bank could get in touch with you and ask for all the money back at any time.

How does an overdraft get paid back?

Once you’ve become overdrawn then interest will be charged on the amount of money borrowed, and as overdraft interest is usually calculated daily, the faster you can pay it back the less you’ll pay overall. When it comes to interest rates and fees, these are often higher for overdrafts compared to other types of loans giving the short-term nature.

Before you decide to use your overdraft, it’s a good idea to check what you can afford. Our guide on how to create a budget and manage your money includes top tips to help you take control of your finances and see if this is an option for you. You can also seek free and independent advice from other organisations like StepChange and Citizens Advice.

If you’re struggling with your finances and still need to pay off your overdraft then it’s important to contact your bank and explain your situation.

What happens if I can’t pay my overdraft?

Perhaps you’re wondering ‘what happens if I can’t pay my overdraft’? In the UK, you might receive a default notice from your bank if you don’t pay. This is a letter to warn you that you need to pay off your overdraft debt or the account will be closed.

After two weeks following the default notice, if you don’t clear your overdraft debt or haven’t agreed a repayment plan with your bank then they may take further action which could include additional contact, passing the debt to another firm or applying to the court to recover the money.

If you let your bank know that your financial situation has changed, they may be able to temporarily pause interest and fees on your overdraft debt or allow you to pay essential costs like food and bills before clearing your overdraft.

MoneyHelper has a useful guide on overdrafts which includes various tips for controlling your overdraft and avoiding additional costs.

Does an overdraft impact your credit score?

Like other loans, an overdraft can impact your credit score. If you have an active overdraft, this will appear in your credit file as a debt. Lenders who look at your credit file will be able to see:

  • Your overdraft limit
  • How often you use your overdraft
  • How much you spend when you get overdrawn
  • How often you pay back your overdraft debt

With an authorised overdraft, as long as you pay back what you owe on time then your score is unlikely to be impacted. However, going into an unauthorised overdraft could negatively impact your score and make it more difficult to get future credit.

Is my Lowell debt an overdraft debt?

Here at Lowell, we’re a debt collection company and we buy debt from other companies including banks. That’s why you might feel like you’ve heard from us out of the blue. Once Lowell has bought your debt, we become the legal owners and any outstanding balance is owed to us. To find out more about what we do, we’ve got a guide explaining how debt purchasing works.

If you’ve been contacted by us, please do get back in touch so we can work together and begin your journey to becoming debt-free with Lowell.

Over one in 5 Brits are extending overdrafts to make ends meet

We know the rising cost of living has made things more difficult for everyone, regardless of your age or personal situation. That’s why we’ve conducted our own research1 to try and find out more about the biggest causes of debt and the main financial problems for each generation.

Many households are having to find additional sources of income with 37% of Brits dipping into their savings to ensure their family is financially supported. To make ends meet, 26% of Brits have even turned to selling on second-hand sites such as eBay and Vinted. More worryingly, almost a quarter of Brits (22%) are choosing to extend their overdrafts leading to further debt and increasing use of credit. Other ways people are financing their family expenses include getting a second job (20%), taking out loans (17%), and seeking government help (8%).

According to our research, one in 10 (11%) Brits are finding themselves getting up to £500 in debt each month. The reasons behind taking on this additional debt varies as we look through the generations - over a third of 18-24 year olds (36%) say that it’s due to poor money management whilst taking out credit cards seem to be an issue for those aged between 25 and 34. Unsurprisingly, the cost of having a child has impacted 11% of 35-44 year olds and a low income is the main cause of debt for 17% of 45-54 year olds. Meanwhile, 16% of the 65+ age group blame the rising cost of living for increasing debt.

For more helpful guides covering a wide range of debt-related topics, you can visit our debt guidance hub or the Lowell blog. And if you’ve got a Lowell debt and have any questions or concerns, please get in touch with our friendly team so we can help you find the right solution.


  1. A survey conducted by TFL Panel on behalf of Lowell, March 2023. 1,000 respondents who are supporting a family.

First published: 19th June, 2023