Credit Building > Which UK banks offer free overdraft?

Which UK banks offer free overdraft?

Wollit Team2 minute read · Updated 3rd July 2024

Having a free overdraft can be great, as it can allow you to borrow money without incurring immediate interest charges.

Luckily, quite a number of banks in the UK offer free overdrafts. Let’s have a look at the banks that offer free overdrafts, the conditions attached to these offers, and how they impact your credit score.

What is an overdraft?

An overdraft is a kind of short-term borrowing that allows you to spend more than you have in your current account. It is basically a loan from your bank, and you will be charged interest on the amount borrowed. Overdrafts are intended for short-term use and are not meant for long-term borrowing.

How much do overdrafts usually cost?

Overdrafts in the UK usually cost between 19% to 40% APR, depending on the bank and the kind of overdraft.

Here are some examples:

Royal Bank of Scotland: 39.49% APR for both arranged and unarranged overdrafts.
Barclays: 35.0% APR for arranged overdrafts.
HSBC UK: 39.9% EAR for unarranged overdrafts and 0% EAR for the first £25 of an arranged overdraft, with a representative rate of 38.9% APR.

As you can see, these rates are quite high, and closer to a credit building credit card than a personal loan. However, some banks offer interest-free overdrafts up to a certain amount.

Which banks offer free overdrafts?

Here are some of the banks that provide free overdrafts in the UK:

NatWest. NatWest offers an interest-free overdraft of up to £2,000 for students and £3,250 for graduates.
Lloyds Bank. Lloyds Bank offers an interest-free overdraft for customers with certain accounts, such as Classic, Club Lloyds, and Student accounts.
Barclays. Barclays does not offer a completely free overdraft, but it does provide an interest-free buffer for a limited period. This means that you will not be charged interest on the first £180 of your overdraft.

Technically, with the exception of the student accounts, these are not free overdrafts – Lloyds and Barclays simply offer a cap on interest charges up to a certain amount.

You should also keep in mind that the cap is always subject to change, and the overdraft is payable on demand. This means that you will have to repay it as soon as possible if the bank asks you to.

How can I qualify for a free overdraft from UK banks?

To be eligible for a free overdraft from UK banks, you usually need to have an eligible current account with the bank, often one where you pay in your salary or a regular amount. Some banks also have additional requirements. For example, NatWest only offers interest-free overdrafts to students who are currently enrolled in an eligible program.

The most important factor, however, is credit history. All of the interest-free overdraft options we’ve seen require good or excellent credit scores. The bank will also run a full credit check when applying for an interest free overdraft – a soft check is not sufficient.

The good news is that now there are many apps that can help you build and improve credit.

One such app is Wollit. Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This builds your credit history and can eventually improve your credit score, helping you become eligible for the best current account and overdraft options on the market.