What is the ear overdraft calculator?
Overdrafts are a way to borrow money through by current account, and are best used to cover short term or unexpected payments. There are two types of overdraft: arranged and unarranged. An arranged overdraft is one that you apply for, allowing you to borrow up to an agreed upon limit.
How our overdraft calculator works
The calculator assumes you’ve borrowed one fixed amount for all the days you’re overdrawn. But you may find you dip in and out of your arranged overdraft instead, or use more and more as the month goes by. The ear overdraft calculator also doesn’t factor in any introductory overdraft offers you may have, so the actual cost of your arranged overdraft could be lower
How does our ear overdraft calculator compare?
A good way to compare the cost of our overdraft with other ways of borrowing is to look at the APR. The APR shows the cost of borrowing over a year.
APR (variable) explained
APR (Annual Percentage Rate) refers to the overall yearly cost of borrowing, which includes both interest and any possible charges. It indicates what the interest would amount to if it were calculated and added to the outstanding balance once per year. So, we don’t apply any extra or hidden charges; the rate displayed is exactly what you’ll pay.
- Borrowed Amount (Overdrawn Amount):
This is the money you’ve used from your bank account after your balance reached zero, the amount you owe the bank. - Daily Interest Rate:
This shows how much interest banks charge every day.
It works like dividing the yearly interest rate by 365 days (or 360, depending on the bank).
Daily Interest Rate=Yearly Interest Rate365\text{Daily Interest Rate} = \frac{\text{Yearly Interest Rate}}{365}Daily Interest Rate=365Yearly Interest Rate
- How long have you been using the overdraft?
This means the total number of days your account stayed overdrawn (in the minus balance).
How to Use the EAR Overdraft Amount
When you have an overdraft facility, your bank allows you to withdraw funds up to a pre approved or authorised limit. In return, the bank charges interest on the amount you actually use, not on the entire sanctioned limit. This means you only pay interest on the portion of funds you’ve withdrawn, making it a flexible short term borrowing option.
Conclusion
The EAR Overdraft Calculator helps you find out how much interest you’ll pay when you use your overdraft. It’s based on the amount borrowed, the daily interest rate, and how many days you stay overdrawn.
It gives a simple estimate of your cost but doesn’t include any special bank offers. Checking the APR also helps you compare overdrafts with other ways of borrowing.