Overdraft

[beatasono]

Hello,

please help me: what does overdrafts mean in the following context:

Overdrafts can be arranged in one of two ways:

- a formal Overdraft is where an Overdraft facility is arranged before you borrow.

- an informal Overdraft is where you haven't asked us in adavnce, and a debit takes you over your formal Overdraft Limit...

Question: Is an overdraft: 1. a drawdown itself
2. provision of a loan
3. an overdraft account?

what does overdraft arrangement fee mean in the above context?
1. the fee for provision of an overdraft facility?
2. the fee for opening of an overdraft account?
3. or?

 

[beatasono]

Hello,

please help me: what does overdrafts mean in the following context:

Overdrafts can be arranged in one of two ways:

- a formal Overdraft is where an Overdraft facility is arranged before you borrow.

- an informal Overdraft is where you haven't asked us in adavnce, and a debit takes you over your formal Overdraft Limit...

Question: Is an overdraft: 1. a drawdown itself?
2. an overdraft facility (provision of a loan)? or
3. an overdraft account?

what does it mean overdraft arrangement fees? fees for the provision of overdraft facility? or fees for the opening of an overdraft account? or feees for drawdown of an overdraft facility?

thanks a lot...

 

[rainbow84uk]

An overdraft is kind of like a loan but it allows you to go below zero in your bank account. So if you have a €200 overdraft limit, you can go down to -€200.

 

[Thomas Tompion]

[...]

what does overdraft arrangement fee mean in the above context?
1. the fee for provision of an overdraft facility?
2. the fee for opening of an overdraft account?
3. or?

A bank is likely to charge you a fee for the provision of the facility, whether you use it or not. I think the answer to your question is 1.

 

[Lexiphile]

But the correct answer to your first question is "none of the above."

An overdraft [I thought we spelled it overdraught in England?] is a loan only to the extent that you have overdrawn your account: that is, that the balance is negative -- you have drawn money out that you don't actually own.

You can have an agreed (or not) overdraft facility, but that is not an overdraft. It is simply an authority to overdraw your account. This will cost you only the overdraft arrangement fee, if any. If you then do actually overdraw the account, then you are said to have an overdraft. Then you will normally be charged interest on the debt.

Note the distinction with a loan. With a loan, you are handed the money at the time the loan is agreed, and it costs you interest from then until it is repaid. With an overdraft, you pay interest only so long as your account is actually overdrawn (and usually at a higher rate than a normal loan).

 

[Thomas Tompion]

Hi Lexi,

For what it's worth, I think overdraft is the standard spelling in the UK now - 2.5m Googles against 13,000 for overdraught.

I agreed with what you said in the last post, but couldn't quite see why you thought that made answer 1 wrong. Was it just that it was vague, and failed to mention the fact that you'd be charged interest on any sums actually overdrawn (borrowed)?

 

[Lexiphile]

Not at all, Thomas. You answered the second of Beatasono's questions("what does overdraft arrangement fee mean?"). I agree, the answer to that one is 1.

As to the first question("Is an overdraft:?"), I didn't like answer 1 because the term "drawdown" is not in my banking lexicon. Whatever it is, it sounds like something "active" rather than the state of being in debt.