An overdraft is like a safety net for your account. It allows you to get access to and use more money than is currently in your account – up to a given and agreed overdraft limit. That all sounds fine until you look at the implications in more detail.
It’s important to remember that an overdraft is a type of unsecured debt and that banks can ask for an overdraft to be repaid on demand. If that happens to you, it could be a real problem if you do not have the funds to meet that demand.
Also, it’s worth bearing in mind that overdrafts can often have higher interest rates than other ways of borrowing. In addition to fees for the creation and administration of the overdraft itself, which can make them an expensive way to borrow money.