Unauthorised Overdrafts

Warning: Late repayment can cause you serious money problems

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These can be expensive

An unauthorised overdraft is a situation where a balance is over the required amount and the bank has not authorised this to happen. Banks can then charge large amounts for this occurring and will often continue to do so until the situation is resolved.

An authorised overdraft is one where your bank has agreed that you can have an overdraft, which exists for you to take advantage of at any time within an agreed period, up to a set agreed amount. It normally cost you nothing in interest and charges if you do not use it. If, on the other hand, your account goes overdrawn without the banks permission or you exceed the limits set in an authorised overdraft, then this is known as an unauthorised overdraft. Banks can then charge fees and interest penalties based on how much you are over your overdraft limit and for what period of time. It is then solely the customer’s responsibility to pay the required amount back into their bank account to get the account on track again and therefore back up to date.

Banks are not obliged to grant their customers unauthorised overdrafts and sometimes they will decline certain payments to prevent this from happening however it is always completely on the banks discretion. A bank will always try to give customers approved overdrafts even if it’s temporary to stop certain items being bounced and declined.

It is often the case that banks charge interest rates for unauthorised overdrafts and it will be higher than that charged for an authorised overdraft. This is considered a penalty to discourage customers from taking more money out than they have in their accounts without agreeing it first; it also reflects the increased risk to the bank. A banks duty to other customers means that it has to be able to manage the risks of lending (including overdrafts) first to meet the needs of customers who are making withdrawals from accounts in credit, before meeting any demands of unauthorised withdrawals.

When customers go into unauthorised overdrafts, banks will sometimes contact customers by phone and will also send letters to make sure repayments are made as soon as possible to bring the account back into credit, once customers make repayments into the account for example their wages get paid into the account it will then show credit and then money becomes available so repayments can be made once more. It is unlikely when an account is in an unauthorised overdraft state any further payments will be made but again that is completely up to the customer’s banks. Charges for using unauthorised overdrafts are normally debited the following month but the banks will make sure customers are aware of this.

It is difficult to explain how banks can charge for customers using this facility as many banks can charge extremely different fees. A bank will most likely charge someone a standard fee for first going over their planned overdraft limit and then will carry on charging daily fees until the account shows up to be in credit again, the daily fees can differ and will most likely depend on what amount is over the customers bank overdraft limit. 


By Kieran Moulden