Within banking/the financial services sector in Ireland, an 'overdraft' is an additional amount of money that can be drawn from a current account when it is in debit. (In other words, an additional amount of money drawn from your account when it is below zero). Overdrafts are generally a short-term facility used to temporarily increase cashflow and allows you to spend more than you have in your current account. Although interest rates on an overdraft can be high, you are only paying interest on the amount of money you withdraw.
In Ireland:
If a current account has regular incomings and outgoings, then a bank will usually grant an overdraft to a customer. If money going into an account is withdrawn almost immediately and is not held in the account for any significant amount of time, then the bank might not grant an overdraft as it could see this as an inability to repay.
If you are having difficulty paying back an overdraft, you can ask for a time extension from the bank. This will be granted if your payment history is satisfactory.
If you continue to experience difficulty in paying pack the overdraft and are getting further and further into debt, you can contact the Money Advice and Budgeting Service (MABS). This organisation will consult with you and establish how much money you can afford to pay back per month. It will then contact the bank directly on your behalf. MABS will arrange with the bank for you to pay back a certain amount every month until the overdraft decreases and the debt is cleared. MABS offers this service free of charge.
There is usually an annual fee of approximately 15 euro for an overdraft facility.
The amount that an account can be overdrawn (limit) is agreed in advance between the current account holder and the financial institution.
Interest is charged daily on an overdraft. The interest rate varies from one financial institution to another and can change daily. The amount of interest paid is dependent on how much the account is overdrawn by and for how long.
You should contact your bank or building society if you wish to find out about overdraft facilities. Applying for an overdraft includes filling out a form and can also involve meeting with the financial institution's officials. Some institutions have 24-hour help lines that take applications over the phone. Some institutions also have web sites where applications can be made online.