Overdraft vs credit card: which should I use?
Written by
Emily Tye
Reviewed by
Amy LancashireAn overdraft lets you borrow through your current account, while a credit card is a separate account with its own credit limit. If you can clear the balance in full by your repayment date, a credit card is usually cheaper, as purchases are normally interest-free. Purchases over £100 also get Section 75 protection.
An overdraft can be preferable if you need cash, but interest usually starts from the first day. Both can get expensive if you rely on them for long periods.
What's the difference between an overdraft and a credit card?
Overdraft | Credit card | |
|---|---|---|
Where you borrow | Your current account, using your debit card | A separate account with its own card |
When interest starts | Usually from the first day you're overdrawn | Usually none on purchases if you pay the full statement balance by your repayment date |
Repayments | No fixed monthly amount, but usually repayable on demand | At least the minimum payment each month |
Cash withdrawals | No extra cost beyond overdraft interest | Usually a cash fee, and interest can start straight away |
Purchase protection | No Section 75 protection | Section 75 on purchases over £100 and up to £30,000 |
How do overdrafts and credit cards work?
Overdrafts
An arranged overdraft is a limit your bank agrees to in advance, so you can keep spending from your current account after your balance reaches zero. Anything you pay in reduces what you owe automatically, and some banks expect you to pay money in at least once a month.
FCA overdraft rules mean banks can only charge for an overdraft through a single annual interest rate, with no daily or monthly fees, and an unarranged overdraft can't cost more than an arranged one. Some banks give you until the end of the day to pay money back in before interest starts. Some accounts also include a small interest-free amount, and student accounts often come with a larger interest-free overdraft.
The catch is that an overdraft is usually repayable on demand, so your bank can ask you to pay it back or reduce your limit.
Credit cards
With a credit card, you borrow from the card provider up to a set limit. Each month you get a statement and need to pay at least the minimum payment, and anything you don't clear is charged interest at the card's rate. If you pay the full balance by your repayment date, purchases are usually interest-free. Read more about how to avoid interest charges on a credit card.
Is an overdraft cheaper than a credit card?
It depends less on the headline rate than on whether you can avoid paying interest at all.
Overdraft interest is usually charged for every day you're overdrawn. The average quoted overdraft rate was 34.52% in September 2026, according to the Bank of England. As a simplified illustration, borrowing £500 for 30 days at that rate would cost about £12 in interest. Your own bank's rate, and the way it works out interest, may differ.
The same £500 spent on a credit card and cleared in full by your repayment date would usually cost nothing in interest. If you can't clear it, the cost depends on the card's interest rate. Rates vary a lot between cards, and some cards for people building their credit charge more than a typical overdraft.
When should I use an overdraft or a credit card?
An overdraft rarely beats a credit card you can clear in full by your repayment date, as the card usually won't charge interest on purchases. An overdraft can work out cheaper if you need cash, as credit card cash withdrawals usually come with a fee. It can also cost nothing if you stay within an interest-free amount on your account.
A credit card also gives you more protection on purchases over £100, as Section 75 makes the card provider jointly liable with the seller if something goes wrong. Debit card payments aren't covered, even when they take you into your overdraft, though a chargeback may help.
Can I use a credit card to pay off my overdraft?
Not directly, as a balance transfer only moves debt from other credit or store cards. Withdrawing cash on a card to pay into your current account technically works, but it's usually the most expensive option.
The usual route is a money transfer credit card, which pays money from the card into your current account. Many come with a 0% period, but there's a one-off fee, usually a percentage of the amount you move, and applying usually means a hard credit check. Anything left when the 0% period ends is charged at the card's standard rate.
Before you do it, it's worth checking:
whether the fee is less than the overdraft interest you'd pay over the same time
whether you'll stay out of your overdraft afterwards. Paying it off doesn't remove the limit, so if you use it again, you could owe on both the card and the overdraft
If you'd need longer than the 0% period to pay it off, our guide to overdraft vs personal loan compares a loan as another option.
What if I'm using my overdraft or credit card every month?
Relying on either one for months at a time is when the cost really builds up, and the FCA has rules aimed at exactly this. It says being overdrawn every month for a year is likely to count as repeat overdraft use. On a credit card, paying more in interest, fees and charges than off the balance over 18 months is known as persistent debt. In both cases, FCA rules expect your provider to contact you about it.
You don't need to wait to be contacted. Free, confidential help is available, and our guide on how to get out of debt covers where to start.
FAQs
Can I use my overdraft to pay my credit card bill?
Yes, even if it takes you into your overdraft. That moves the debt rather than clearing it, so you'd pay overdraft interest instead. For a few days, it can stop you missing a card payment, which can mean a late fee and a mark on your credit file.
Can I go overdrawn on a credit card?
No, credit cards don't have an overdraft. Instead, you have a credit limit. Your provider can decline payments that would take you over it, and some providers charge a fee if your balance does go over.
Do overdrafts and credit cards affect my credit score?
They can. Both usually show on your credit file as credit accounts. Staying within your limit and keeping up with payments is unlikely to harm your score, while going over your limit, regularly using an unarranged overdraft or missing card payments can. Our guide on overdrafts and your credit score explains what lenders see.
There are a range of financial products available that may suit your needs. We encourage you to research your options carefully and consider seeking independent financial advice before making any decisions. This blog is for informational purposes only and does not constitute financial advice.
