Overdraft vs credit card borrowing: which costs less?
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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.
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Read the full banking & current accounts guide →Primary source: www.moneyhelper.org.uk/en/everyday-money/credit/overdrafts
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.
Common 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.