Overdraft vs revolving credit: which costs less

2 min read

Pay on the drawn balanceNot the limit

Daily accrualBoth facilities

Fees differCompare the total

Average overdraft used (£)

Annual interest rate (%)

Annual arrangement/renewal fee (£)

Annual cost ≈ average balance used × rate + fees. Compare against a term loan for the same need.

How each is priced

Both charge interest on the daily drawn balance. An overdraft often carries a higher rate but simple terms; a revolving credit facility may have a lower rate plus a non-utilisation fee on the undrawn part and an arrangement fee.

Which suits which usage

For small, occasional dips, an overdraft’s simplicity often wins. For a larger, regularly-used buffer, a revolving facility’s lower rate can more than offset its fees. The break-even depends on how much you draw and how often.

The fees that decide it

Compare the effective cost including every fee, not just the rate. A cheaper rate with a non-utilisation fee can cost more if you rarely draw; a pricier overdraft with no standing fees can be cheaper for light users.

Model your typical usage

Estimate your average drawn balance and how long you hold it, then compare the two on total cost using the calculator below.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See revolving facility interest and the answer on term loan vs revolving facility.

Frequently asked questions

Which is cheaper, an overdraft or a revolving facility?

It depends on usage. Light, occasional users often do better with a simple overdraft; heavier, regular users with a lower-rate revolving facility despite its fees.

Do both charge interest daily?

Typically yes, on the drawn balance. That means paying down sooner in the month reduces interest on either facility.

What fees should I compare?

Arrangement fees, non-utilisation or commitment fees, and any renewal charges — alongside the rate. Compare the effective total for your expected usage.