What is a temporary overdraft?
A temporary overdraft refers to a short-term extension of credit provided by a financial institution to cover unexpected expenses or temporary cash flow shortages in a transaction account.
Who offers the best overdrafts on accounts?
Finding the best overdraft account in Australia depends on various factors, including your financial situation, banking needs, and preferences. Overdrafts are typically linked to transaction accounts and provide a buffer for when your account balance falls below zero.
You can find the best options at Big Four Banks (ANZ, Commonwealth Bank, NAB, Westpac), Online Banks and Neo-Banks (Up Bank, 86 400, and Volt Bank), Credit Unions and Mutual Banks.
How does a bank overdraft work?
Overdrafts are linked directly to your transaction account. When you make a withdrawal or payment that exceeds your available balance, the overdraft covers the shortfall.
Banks set a credit limit for your overdraft, which is the maximum amount you can overdraw from your account. This limit is based on factors such as your income, credit history, and relationship with the bank.
Interest is charged on the amount you overdraw from your account. Interest rates for overdrafts are typically higher than those for standard personal loans but lower than credit card interest rates. Banks may charge fees associated with the overdraft facility, such as an establishment fee, annual fee, or usage fees based on how much of the overdraft limit you use.
Overdrafts are intended for short-term use. You are required to repay the overdrawn amount promptly once your cash flow improves or within a specified period set by the bank.
Home loan calculations for 20 years (example)
| Amount, $ | Rate, % | Accrued %, $ |
| 100,000 | 5.50% | 55,458 |
| 100,000 | 5.60% | 56,467 |
| 100,000 | 5.70% | 57,475 |
| 150,000 | 5.80% | 87,725 |
| 150,000 | 5.90% | 89,238 |
| 150,000 | 6.00% | 90,750 |
| 200,000 | 6.10% | 123,017 |
| 200,000 | 6.20% | 125,033 |
| 200,000 | 6.30% | 127,050 |
| 250,000 | 6.40% | 161,333 |
| 250,000 | 6.50% | 163,854 |
| 250,000 | 6.60% | 166,375 |
How do I access an overdraft?
When you attempt a transaction that exceeds your account balance, the overdraft automatically covers the shortfall, up to your approved limit.
Some banks may require you to apply for an overdraft, especially for larger limits. This involves submitting an application, which the bank assesses based on your financial situation and creditworthiness.
Can I get an overdraft with no credit check in Australia?
In Australia, it's uncommon to obtain an overdraft without a credit check. Financial institutions, including banks and credit unions, typically conduct credit checks as part of their responsible lending practices when assessing applications for overdraft facilities.
