Please explain UK overdraft to me. I'm freaking out.

You guys, can you please explain to me how UK overdraft limits differ from overdraft protection in the US?

My UK-spouse has overdraft on his bank account, and is telling me that it's perfectly ok and normal for people to spend against it, as if it were a credit card or loan.

In the US, generally it's discouraged to use your overdraft protection like cash, and is really just for emergencies most of the time, no?  (I never overdraft, so I don't have it.)


I'm really nervous about this because he's been using it, and so his bank statements say he's got a negative balance over this summer when we bought planet tickets and such, and as I've just lost my job this week, I'm scared this will kill our application.  It looks to me like we're living on credit, instead of on income.  (That's not ok with me anyway, but it certainly probably isn't ok for proving we won't need public funds.)

Can you explain it for me?  I will really, really appreciate it.

Yeah, it took me a while to get used to it too.  Basically, it's like a credit card- it's certainly nothing like going overdrawn in your bank account in the US.  A bank will usually give you a set overdraft limit and you can make purchases up to the limit usually incurring a finance charge similar to what you would see on a credit card (often lower.)  Banks often offer students interest-free overdrafts while they're at university and for a few years after graduation- many students live on their overdrafts without a second thought (DH is a recent graduate and is currently several hundred into his overdraft because he basically used it to help fund his time at university.)

It's better if you can get by without using your overdraft- as I said before, I'd treat them as credit cards and do try to get them paid off, but it's not the end of the world if you carry a balance on them as long as you don't go over your limit.

thank you so much.  you probably just saved us from having a huge fight, because i'm a little stressed about doing my spousal visa and i was sure for a minute that this was the end of it.

going to go find a drink now. 

DH went into his all the time before our application.  We still got approved!!!
He did make sure when I put the app through that the last bank statement was issued just after he was paid so the account was in the positive, but I don't think they think of it as a big deal, as long as your DH has a steady job.  
We didn't have much money in our account and I still got my visa!    
But DH has had the same job for 17 years, so I guess they weren't too worried about us getting benefits.
Anyway, we have had to use ours since I got here, still trying to catch up, but at the end of each month since I have been working, it is slowly coming back up.  You will be fine!!  

Using an overdraft will generally be cheaper than charging the same amount to your credit card and then paying the card interest. 

It's quite normal in the U.K. to arrange for an overdraft of up to a few hundred pounds instead of getting a loan of the same amount, especially where you might want the money for only a short period, or perhaps only a small proportion of the overdraft for a longer time.  It's certainly no bigger deal than having a loan or a credit card balance.

Now if you exceed your overdraft limit, or go overdrawn without prior arrangement, that's a different matter, and you'll be hit with ridiculously high bank charges.

I will say that we briefly paid off our overdraft for the purpose of our spouse visa application, but even then we slipped at the last minute and were -£200 in his account when we applied.  We made sure we included a budget and a plan for paying off the overdraft ASAP, which turned out to be fine.

I think i've lived in my overdraft for the past 9 years.  Wonderful thing that it is.

Keep an eye on the interest rate on your overdraft, if you plan to use it often.  Banks may lure you in with a low rate, but can bump it up later on, similar to credit cards.

I suppose there are overdraft rate tarts who move their money around from bank to bank to get the best interest rate deals on overdrafts.

Whether or not you feel comfortable with using an overdraft is a personal thing; really no different to how you feel about using/paying off credit cards.

Personally, I almost always pay off my credit cards in full immediately so I never have to pay interest; it goes without saying that I don't go into my overdraft.

But there is nothing wrong with using your overdraft, you won't get into any type of "trouble" for it, just like you won't get into trouble for paying for things with a credit card.

I don't know how the Home Office feels about people who rely on credit to live, particularly with the economy as it is now.

Use of an authorised overdraft for one of payments and emergencies is not going to be a problem.

Constantly having to use your overdraft because always spend more than you earn is.

Vicky

Constantly having to use your overdraft because always spend more than you earn

In the words of Dickens' Mr. Micawber:

"Annual income 20 pounds, annual expenditure 19 pounds, 19 and 6, result happiness.   Annual income 20 pounds, annual expenditure 20 pounds ought and 6, result misery."

 

Use of an authorised overdraft for one of payments and emergencies is not going to be a problem.

Constantly having to use your overdraft because always spend more than you earn is.

Vicky

Thanks Vicky.

In the words of Dickens' Mr. Micawber:

"Annual income 20 pounds, annual expenditure 19 pounds, 19 and 6, result happiness.   Annual income 20 pounds, annual expenditure 20 pounds ought and 6, result misery."

 

Congratulations on getting the "ought" right in that quotation, Paul, it always spoils the effect when people get that wrong, I feel.

Just make sure that when you apply for the visa that the account is in the black at that time.  I was told by the person at UKBA handling our case that it didn't matter if the overdraft happend  the day before but she needed to see money in there or wouldn't be able to process my application.  It was a different visa though....that was jsut my experience GOOD LUCk!!

Just make sure that when you apply for the visa that the account is in the black at that time.  I was told by the person at UKBA handling our case that it didn't matter if the overdraft happend  the day before but she needed to see money in there or wouldn't be able to process my application.  It was a different visa though....that was jsut my experience GOOD LUCk!!

Actually, this is not accurate, as I have already stated.

Vicky

I'm sorry I wasn't trying to mislead anyone, just sharing what I had to do!! thanks Vicky:)