# Overdraft vs credit card borrowing: which costs less?

> Banking & current accounts · Last updated 23 June 2026

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## Quick answer

For short-term borrowing of a few days, a fee-free overdraft buffer may be cheapest. For anything lasting weeks or months, a 0% purchase credit card or a low-rate personal loan usually beats a standard overdraft charging around 40% EAR.

Banks and credit card lenders both offer ways to borrow, but the costs differ sharply. Since FCA reforms, overdrafts charge a single advertised rate — often near 40% EAR — while credit cards can offer 0% introductory periods. Choosing the wrong product for your timeframe can cost hundreds of pounds.

## Key facts

- Most UK arranged overdrafts charge around 39.9% EAR with no daily fees since 2020 FCA reforms
- 0% purchase credit cards can offer 12–24 months interest-free on spending if you pay on time
- Overdraft interest is calculated daily on the amount you are overdrawn
- Credit cards charge interest on the remaining balance after the statement date if not paid in full

## Cost comparison in practice

Borrowing £500 for three months on a 39.9% EAR overdraft costs roughly £50 in interest. The same £500 on a 0% purchase card costs nothing if you clear it before the promotional period ends.

Overdrafts suit very short dips — a few days between paydays — especially if your bank offers a small interest-free buffer. Credit cards suit planned spending you need to spread over months.

## Credit score and eligibility

Both products appear on your credit file. Persistent overdraft use and high credit card utilisation both signal risk to lenders.

Applying for a new credit card involves a hard search. Extending an existing overdraft may also require a credit check. Neither is inherently better for your score — behaviour matters more than the product type.

## When neither is the right answer

If you are borrowing to cover essential bills repeatedly, a 0% card or overdraft is a sticking plaster. Free debt advice from StepChange or National Debtline can help you address the underlying gap.

For larger sums over several years, a personal loan with a fixed rate and repayment schedule is usually cheaper and more predictable than revolving credit.

## Frequently asked questions

### Is an overdraft cheaper than a credit card for one week?

Often yes, especially with a fee-free buffer. A 40% EAR overdraft on £200 for seven days costs about £1.50 in interest.

### Can I use a credit card to pay off an overdraft?

Yes, via a money transfer card — a type of balance transfer that sends funds to your bank account. These have transfer fees but can clear expensive overdraft debt at 0%.

### Does an unarranged overdraft cost more?

FCA rules prevent banks from charging more for unarranged than arranged use, but unarranged overdrafts still harm your credit file and most payments that would exceed your limit are now declined.

## Primary source

https://www.moneyhelper.org.uk/en/everyday-money/credit/overdrafts

## Related

- [Overdrafts explained](https://moneyguide.org.uk/banking/overdraft-explained/)
- [0% credit cards explained](https://moneyguide.org.uk/credit/0-percent-credit-cards-explained/)

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Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Money Guide is not a financial adviser and does not currently earn commission on credit cards. This guide is educational information only — always check the issuer's own terms, eligibility checkers and fees before applying. 18+, subject to status. Credit is a commitment: only borrow what you can repay in full each month, because interest charges erase every reward on this page.