A student overdraft is one of the cheapest debts you'll ever have: up to a few thousand pounds at 0%. The catch comes after you graduate. The interest-free limit shrinks year by year, and anything above it is charged at the bank's normal overdraft rate, which is around 40% at most big UK banks.
This guide explains how long you really have, what it costs if you leave it, and a simple plan to clear it while it's still free.
What happens to your overdraft when you graduate?
When your course ends, most banks move you onto a graduate account. You keep an interest-free overdraft, but the 0% limit steps down, usually over one to three years. For example, a bank might give you 0% on up to £3,000 in the first year after graduating, then 0% on £2,000 in the second year, before it ends.
Each bank's steps are different, so check yours. Look for your graduate account's key facts document, or ask in your banking app: "What is my 0% limit now, and when does it next go down?"
If you don't switch to a graduate account, or your bank doesn't offer one, your overdraft may move straight onto standard rates.
How long do I have to pay it back?
There's no single deadline, and that's what catches people out. Your overdraft doesn't become due on a set date. Instead, interest starts on any part of your balance that is above the current 0% limit. So the real deadline is each date the limit steps down.
Like any overdraft, it's also technically repayable on demand. Banks rarely ask for it all at once, but they can reduce your limit, so don't rely on it staying the same.
What it costs if you leave it
Say you still owe £2,000 when the 0% period ends and it moves to 39.9% EAR. If you stop using it and pay a fixed amount each month:
Paid off each month | Time to clear | Interest paid |
|---|---|---|
£75 | 4 years 3 months | about £1,790 |
£100 | 2 years 6 months | about £1,000 |
£150 | 1 year 5 months | about £550 |
£200 | 1 year | about £390 |
Now compare that with clearing it while it's still 0%. £2,000 over 24 months is about £84 a month, with no interest at all. Starting early is the single biggest saving you can make.
A simple plan to clear it
Find your dates. Write down your current 0% limit and the date it next steps down. That's your real deadline.
Work out a monthly amount. Divide your balance by the months until the 0% ends. That's what you need to pay to never be charged interest. The payoff calculator shows the date you'll be clear.
Make it automatic. Set a standing order on payday into a savings pot, or simply keep your balance that much higher each month, so the overdraft actually shrinks instead of bouncing back.
Lower your limit as you go. Ask your bank to reduce your arranged limit as the balance falls, so you can't slip back into it.
Spend from a separate account. Have your salary paid into the overdrawn account, then move your spending money to a basic account with no overdraft.
What if you can't clear it in time?
Pay down the part above the 0% limit first. Only that part costs interest, so keeping your balance at or under the free limit stops the charges.
Look at other graduate accounts. Some banks let you switch and bring a 0% graduate overdraft with you. Check the new bank will cover your full balance before you switch.
Be careful with money transfer cards and loans. They can be cheaper than 40%, but only if you also cut your overdraft limit. Otherwise you can end up owing on both. See how to pay off an overdraft for the trade-offs.
When to get help
If you're using your overdraft for rent or food, you're always at the limit, or you have other debts building up too, talk to your bank. Banks must treat customers in financial difficulty fairly, and can freeze interest or agree a plan.
Free, confidential advice is also available from StepChange, National Debtline and Citizens Advice. You'll find them on our financial resources page.
Got other debts too?
Many graduates have an overdraft and a credit card at the same time. Your student loan works differently, as it's repaid through your salary and isn't usually something to overpay. Add your overdraft and cards to the payoff calculator to see the cheapest order to clear them.
Examples assume 39.9% EAR, monthly compounding, no new spending and no fees. Your bank's rates and 0% limits may differ. This guide is general information, not financial advice.