How Overdraft Interest Works
Overdraft protection and personal lines of credit charge interest only on the amount you actually use. Interest accrues daily at a rate derived from your APR.
- Daily interest = Balance ร APR รท 365
- Total interest = Daily interest ร Days used
- Monthly estimate = Balance ร APR รท 12
This calculator uses "balance used ร days elapsed รท 365" because most lenders charge interest only on the actual outstanding balance, for the exact number of days it was outstanding โ a standard daily-accrual method. Dividing the APR by 365 reflects the industry-standard 365-day year, and it's also why a credit line you open but never draw on never accrues interest.
Overdraft APRs can range from 10% to over 30%. Repaying quickly minimizes interest charges. If you need funds longer term, consider a personal loan with a lower fixed rate.
Frequently Asked Questions
Yes โ you can ask your bank to lower your rate, especially if your credit score has improved. Refinancing into a personal loan at a lower APR is another option for larger balances.
Overdraft usage itself doesn't directly lower your credit score, but high utilization of a line of credit can reduce your score. Keeping usage below 30% of your limit is recommended.