Overdrafts vs Credit Cards: What’s Right For Me?

Quick answer: Overdrafts and credit cards are both types of credit. An overdraft is attached to your bank account and can be used for short-term borrowing. A credit card is a separate product and better for regular or longer-term borrowing.

Whether it would work better for you to use an overdraft, a credit card, or a combination of the two, depends on your individual circumstances. With most overdrafts, you’ll start paying interest straight away. So, it might be worth considering a credit card or another alternative for longer-term borrowing. This guide covers the differences between overdrafts and credit cards, how they work and how they each might affect your credit score.

What’s the difference between an overdraft and a credit card?

Overdrafts and credit cards are both types of revolving credit, meaning you can borrow up to a limit and reuse the credit once you pay it back. But an overdraft is attached to your bank account, while a credit card is a separate product. Other differences between overdrafts and credit cards include:

• Taking out cash — Overdrafts let you take out cash at no extra charge, while most credit cards charge a fee for cash withdrawals.
• When you have to pay — Credit cards have a monthly minimum payment, while overdrafts usually don’t. But banks can ask you to repay an overdraft at any time.
• When you’re charged interest — You usually have between 25 to 55 days to repay your card with no interest charges, but most overdrafts start charging interest at the end of the day.
• How much you can borrow — You may be able to get a higher credit limit with a credit card than an overdraft.
• What you use them for — Some cards are designed for planned purchases or balance transfers, while overdrafts are for short-term, essential borrowing.
• Protecting your purchases — Credit cards offer some purchase protection under Section 75 if something goes wrong, but overdrafts don’t.

Which is better, an overdraft or a credit card?

It depends on your circumstances. You might prefer an overdraft if:

• You need a short-term safety net to cover unexpected expenses and stop important payments from bouncing.
• You want to borrow cash. You can also do this with a money transfer card, but you’ll usually need a high credit score to get approved.
• You want your borrowing, income and payments to all happen in the same place. Some people may find this easier to manage.
• You think your bank is more likely to approve you than a credit card lender.

You should usually avoid an overdraft if you want to borrow for a long period or you’re struggling with living costs. Overdrafts are an expensive way to borrow, and your limit can be cancelled or lowered at any time.

You may prefer a credit card if you want to:

• Borrow regularly for between 25 to 55 days and pay it off with no interest charges.
• Have some protection if something goes wrong with your purchases.
• Keep your borrowing separate from your bank account.
• Spread a large expense or group your card debt with a 0% promotional period. Try to pay off your balance before the 0% period ends and you’re put on the lender’s standard variable rate, which is usually high.

If you think a credit card might be right for you, you can compare credit cards with Experian. It’s free and won’t affect your credit score. Just remember, we’re a credit broker, not a lender.

Overdraft vs credit card: interest rates

In the UK, the average APR paid on credit cards and overdrafts is similar — both were around 22% at the end of 2025. But these rates may be different to the rates you see advertised or the one you actually get. Some credit cards offer 0% interest for an introductory period before increasing it to the lender’s standard variable rate. Overdrafts are usually only interest-free for students.

Overdraft vs credit card: credit score impact

Overdrafts and credit cards will both appear on your credit report and could impact your credit score. For both a credit card and an overdraft, how they impact your score depends on how you manage them. Your credit score reflects how lenders are likely to see you. So, the most important thing is how you manage your debt and credit, whether that’s with an overdraft or a credit card.

An arranged overdraft is unlikely to have a big impact on your credit score, if you don’t go beyond your limit and pay it off regularly. If you go into an overdraft without arranging it with your bank, it can negatively impact your credit score. But, if you have an overdraft and you use it sensibly, it could actually improve your credit score. Find out more with our guides about the difference between arranged and unarranged overdrafts and how overdrafts affect your credit score.

If you have a credit card and you manage it well, by making payments on time and not using all your balance, it could also improve your credit score. But if you’re using up a lot of your balance and only making the minimum payment, it could make lenders think you’re struggling to manage the debt. Your credit score could drop to reflect this. Learn more about how to use your credit card and what affects credit scores.

What are some other overdraft alternatives?

A personal loan lets you borrow a fixed amount and repay it in regular monthly instalments over a set period. Loans may offer larger borrowing amounts than overdrafts. You usually need a good credit score to get approved, especially for the best rates.

Credit union loans are offered by member-owned lenders. They may be a more affordable option, as they often are for smaller amounts and have lower interest rates.

If you’re struggling with the cost of living, you may be able to get financial support from the UK government or charities. For example:

• National Debtline explains how to get breathing space from payments.
• Citizens Advice can help you make a plan to pay off debt.
• StepChange offers unbiased debt advice through a free online tool.

FAQs

Can you use a credit card to pay off an overdraft?

You need a special type of credit card to pay off an overdraft with a credit card. These are called money transfer cards. By using a money transfer card, you can move the debt from the overdraft to a credit card.

Money transfer cards often have a 0% interest period when you first get them. This means that, once you’ve paid off the overdraft, there will be a period when you won’t have to pay interest on the credit card debt, which can help you to pay it off.

Lenders often charge a fee for the money transfer with a money transfer card. This will be a percentage of the amount you’re transferring. It can still be worth it to pay the debt off, if the cost of the fee is less than what you’d pay in interest. Try to pay the card off within the 0% period to avoid paying any more interest. As with any credit card, it’s important to make at least the minimum payment and pay on time to avoid additional charges.

Overdrafts vs line of credit

A line of credit is another type of revolving credit, like an overdraft or a credit card. Like an overdraft, it’s a way to borrow money flexibly up to a pre-agreed limit. But products advertised as lines of credit in the UK are uncommon.

Where they are available, lines of credit usually have very high interest rates. An overdraft is likely to have a lower interest rate and, unlike lines of credit, there’s no minimum payment or withdrawal. Of the two, an overdraft is typically the less risky option.

Can you be overdrawn on a credit card?

No, you can’t go into an overdraft on a credit card. Many lenders will block transactions if you try to spend more than your credit limit. If you go over your credit card limit, you are likely to face penalty charges. You won’t be able to spend on the credit card until you’ve paid off some of the balance.