Overdrafts are charged interest:

• A. Only when the overdraft limit has been exceeded
• B. When used
• C. If not used
• D. Only when fully drawn

Answer: (B)

Interest on an overdraft is charged on the amount you actually owe at any time—the negative balance you have drawn—not on the credit limit itself. When you use the overdraft, the balance is overdrawn, and interest accrues on that overdrawn amount (typically daily and charged monthly) at an often higher rate than other borrowing. If you don’t use the overdraft, there’s no interest because you haven’t borrowed anything. Exceeding the limit can bring extra fees, but the basic interest is tied to how much you’ve drawn, not to having fully drawn the facility. So the statement that overdrafts are charged interest when used best reflects how this form of credit works.