Student Overdrafts

Quick answer: Student overdrafts let you borrow through your student bank account when your balance is at £0. They’re often interest-free while you study, but charges might apply after graduation. Managing your overdraft well could help protect your credit score and reduce the risk of extra costs later.

If you’re doing a full-time degree in the UK, a student overdraft could give you a little extra help with living costs. There’s usually no charge to use it while you’re studying. Using a student overdraft responsibly could even build your credit history, helping you get more credit options in the future.

There are some important things to know about student overdrafts. You should always arrange an overdraft before using one, and they’re best used for essential short-term borrowing. You may be charged interest once you graduate if you still owe money, which can be costly.

This guide explains how to apply for a student overdraft and manage it well, so you can make student life easier while you build your future.

What is a student overdraft?

A student overdraft is a type of borrowing that lets you use more money than you actually have in your bank account. Once you’ve arranged an overdraft, you can borrow from it using your debit card.

Student overdrafts are designed to help with essential costs if you can’t pay them straight away, such as a deposit to rent student housing.

What’s the difference between an arranged and unarranged overdraft?

Your overdraft is arranged if your bank agreed you can use it. This means you applied for the overdraft and were approved. This might have happened at the same time you applied for your student bank account.

An unarranged overdraft is when you go into an overdraft without getting your bank’s approval first. This might happen if you spend more than you have and your bank can’t stop the payment, or if you spend more than your arranged overdraft limit.

Try not to go into an unarranged overdraft, as it could mean:

• You may be blocked from spending money until you pay off what you owe.
• Your credit score could go down, making it harder to get credit in the future.
• Your bank might close, or default, your account and tell you to pay them back.

How do student overdrafts work?

If you have arranged a student overdraft, you can start borrowing from it once your bank balance reaches £0. You’ll use your overdraft when you spend on your debit card, make transfers or withdraw cash.

You can only borrow up to a certain amount, called your overdraft limit. Going over your limit will put you in an unarranged overdraft. You can check your bank statements or banking app to see how much of your overdraft you have used, and how much you have left.

A student overdraft doesn’t have monthly payments, but paying it back as soon as you can will help protect your credit score. Money that comes into your student bank account, like your student loan payments or wages, will go towards paying off your student overdraft.

There’s usually no interest to pay while you’re studying. But interest charges will start soon after you graduate, if you still owe money on your student overdraft.

How do limits work on student overdrafts?

Student overdraft limits often range from around £500 to £3,000. Some banks guarantee a certain limit if your application is approved. Others may decide your limit after you apply, based on things like your credit score.

Your student overdraft limit may go up each year during your degree, either automatically or if you apply. Using most or all of your overdraft can make it harder to get a limit increase, as your bank could think you can’t afford to pay them back.

Get an idea of how lenders may see you with your free Experian Credit Score. A higher score means better chances of getting a higher overdraft limit.

How does interest work on student overdrafts?

Interest is the cost of borrowing money, charged as a percentage of the amount you owe. The good news is student overdrafts usually have 0% interest, meaning there’s no cost to borrow while you’re doing your degree. But this doesn’t mean it’s free money. You’ll have to pay your overdraft back at some point, ideally as soon as you can.

If you owe money on your student overdraft when you graduate, you may have a short period to pay it off before interest charges start. You can learn more about what happens after you graduate below.

Credit Score Specialist

What our expert says

Student overdrafts can be a useful safety net while you study, especially as there’s usually no interest to pay. But it’s still borrowed money. Keep track of your balance and pay it off as soon as you can. This can help you protect your credit score and avoid costly interest once you graduate.Jacqui Hamilton, Experian UK

How to get a student overdraft

UK banks often let you apply for a student overdraft when you open a student bank account with them. You usually need to:

• Be age 18 or over
• Have been accepted onto a full-time course
• Give proof of your student status, like from your university or UCAS

When you apply for a student overdraft, the bank may run a hard credit check to understand how you’ve handled credit in the past. If you have a low credit score, banks may be more likely to turn you down or give you a lower limit.

The good news is there are ways to improve your score, like:

• Building a credit history. For example, by paying a mobile phone contract on time each month or reporting rent payments.
• Registering to vote. Make sure your address is the same across the electoral roll, your credit report, and your application for a student overdraft.
• Connecting to Experian Boost. Reporting your everyday payments for things like Spotify and Netflix could give your score an instant lift.

Check your credit score for free without affecting it and learn what affects your score.

What happens to my student overdraft when I graduate?

When you finish your studies, your student bank account will usually switch to a graduate account. This may keep your student overdraft interest-free for about a year. Some banks lower the interest-free limit gradually to help you pay back what you owe. If you owe money outside the interest-free limit, you’ll be charged interest on it, usually at a high rate.

Make sure you check the details for your bank account. Find out how the interest-free limit will change in the years after you graduate, and what the interest rate will be.

Graduate account example

Let’s say you have a student account with an overdraft with a £3,500 limit. Once you graduate, the interest-free limit goes down to:

• £3,500 one year after graduating
• £2,500 two years after graduating
• £1,500 three years after graduating
• £0 four years after graduating

Anything you owe over the interest-free limit would be charged interest. For this example, let’s say the limit is 39.9% EAR (Effective Annual Rate).

You will not be charged interest if you make enough payments to bring the balance down to the new limit. So, if you pay £1,000 in the first year to bring the balance down to £2,500, £1,000 in the second year to bring the balance down to £1,500, then £1,500 in the third year to bring the balance down to £0.

If you do not make payments, you will be charged 39.9% EAR on the amount over your 0% limit. This means charges of:

• £0 interest in the first year, because you’re within the 0% limit of £3,500
• £399 interest in the second year, charged on the £1,000 over your 0% limit of £2,500
• £798 interest in the third year, charged on the £2,000 over your 0% limit of £1,500
• £1,396.50 interest in the fourth year, charged on the full £3,500 as you no longer have a 0% limit

Our tips below may help if you’re finding it hard to pay off your overdraft.

How to get out of a student overdraft

While you’re studying, these steps may help you stay out of your student overdraft:

• Create a budget. This can help you cover costs without relying on your overdraft. MoneyHelper has some useful tips on university budgeting.
• Only borrow for essentials. Things like rent, food and course books.
• Make payments often. When you put money into your account it will go towards your overdraft.
• Keep track of changes. Check your balance often and read all mail from your bank, so you understand what you owe. App alerts can help too.

If you’ve graduated, these steps could help you get out of a student overdraft:

• Make a plan. Budget for regular overdraft payments and consider debt repayment methods like the snowball or avalanche approach.
• Treat limit changes as milestones. Some banks reduce your interest-free limit each year. Keeping your overdraft within the 0% limit can help you avoid interest and stay motivated.
• Set up a regular payment. If you’re being paid into a separate account, a direct debit or standing order can put some of your salary towards your overdraft as soon as you’re paid.
• Speak to your bank. If you’re struggling to get out of your student overdraft, your bank may offer a repayment plan or pause interest. Get free debt advice from an organisation like StepChange or National Debtline.
• Pay for essentials first. You have a right to use payments into your bank account for essentials, like food, rent and priority bills, before paying off your overdraft. Tell your bank if you need this.

MoneyHelper has more information on managing student overdrafts and graduate accounts.

Student overdraft vs. student credit card

A student overdraft and student credit card are both ways to borrow money while you’re studying. It’s best to use them for essential costs and pay them back quickly. Some of the differences are:

• Interest. Student overdrafts are usually interest-free the whole time you’re studying. Student credit cards are more likely to have an interest-free period of a few months or none at all, although you won’t be charged if you pay off your card each month in full.
• Payments. It’s usually up to you when you pay off your student overdraft. Student credit cards have flexible payments, but you’ll need to pay at least the minimum amount each month.
• Account type. Student overdrafts are linked to your bank account, while credit cards are a separate account. You might prefer an overdraft if you like to see your finances all in one place, or a credit card if you like to keep them apart.

Frequently asked questions

How to build my credit score as a student?

If you’re new to using credit, there may not be much information on your credit report for lenders to use when they score you. But don’t worry, there are many ways to build your credit history and improve your score, such as registering to vote, or connecting to Experian Boost.

A better score can make it easier to get things like a student overdraft, rented housing and monthly utilities. It can also help with bigger stuff in the future, like if you want to finance a car or buy your first home.

Do student overdrafts affect your credit score?

Yes, a student overdraft can affect your credit score depending on how you manage it. Your score should not be harmed if you only use a little of your overdraft and pay it off quickly. This may even help build your credit history, as it can show lenders you handle credit well.

Your score may go down if you use a lot of your student overdraft limit, especially for a long time. This is because some lenders might think you’re more of a risk if you use more than 25% of your available credit. Going into an unarranged overdraft can also lower your score.

Just so you know, student loans are a different story. Unlike student overdrafts, student loans do not affect your credit score in the UK as they don’t show on your credit report.

Check your Experian Credit Score for free by setting up an Experian account or downloading the Experian app.

What’s the average credit score for students?

There’s no single average credit score that applies to all students. Your score depends on the information in your credit report, such as how much credit history you have and whether you make payments on time. You can check your Experian Credit Score for free to see where you stand.

What’s a typical student account overdraft limit?

Student overdraft limits in the UK are often between £500 and £3,000. The actual limit you get depends on how your bank makes decisions. Some may decide on your student overdraft limit after you apply, based on information like your credit score.