It’s not usually possible to borrow money with a debit card, but there are some ways that make it possible..

Can I borrow with a debit card? This is a common question that many Australians have asked. As the cost of living crunch starts to hit us all in the hip-pocket with inflation hovering around 7% in the March 2023 quarter, Aussies are looking for some extra cash to cover unexpected expenses, emergencies or sometimes even just plain-old groceries.

So if you are looking to borrow with a debit card, the answer is not so simple. It will depend on several factors, such as your bank, your account type, and your credit history.

One potential solution for borrowing – an overdraft

One way to borrow on your debit card is to use what’s called an “overdraft facility“. An overdraft is a type of credit that allows you to withdraw more money than you have in your account, up to a certain limit. Keep in mind though, you will have to pay interest on the amount you overdraw, as well as the fees and charges your bank charge. The interest rate for overdrafts varies depending on the lender, ranging from 11% p.a. up to 16% p.a. Overdrafts can be useful for short-term cash flow, but they can get expensive and risky real quick if you don’t repay them.

It’s important to understand the difference between debit cards and credit cards. Credit cards access a separate, individual account, which almost always borrows money from the credit card provider. This account is then repaid, at least to some extent, at the end of the month, although it can be paid off at the borrower’s discretion as long as the minimum payment is made.

Link an offset or redraw account to your home loan

If you’re looking for smarter ways to save money on your home loan, you probably have already heard of redraw and offset accounts. These two features that can help you reduce the amount of interest you pay on your mortgage, but they work differently.

A redraw facility allows you to make extra repayments on your home loan, which can lower your balance and subsequently the interest you pay. If you need to access those extra funds, you can withdraw them from your redraw facility at any time. However, there may be fees or transaction limits involved and this will depend on your lender and loan type.

An offset account is a separate bank account that is linked to your home loan. The money in your offset account reduces the amount of interest you pay on your home loan. For example, if you have a $500,000 home loan and $50,000 in your offset account, you only pay interest on $450,000. The more money you have in your offset account, the less interest you pay. You can also link your offset account to your debit card and use it for deposits and withdrawals.

Both redraws and offsets could help you save money on your home loan, but which one is better for you depends on your personal circumstances and preferences. Some factors to consider are:

In fact, according to the Australian Bureau of Statistics (ABS), the value of home loan redraws increased by 11.6% in 2020-21, while the value of offset accounts decreased by 2.4%. It was thought to suggest that more borrowers are using redraws to manage their cash flow during the COVID-19 pandemic. However, without interviewing every mortgage holder in Australia, this might not be reflective across everyone.

Yes, with a but and no with an if

We’ve seen that it’s “technically” not possible to borrow money with a debit card, but there ways to use your underlying bank account (if your account is set up for it). You may have an overdraft facility, an offset account or a redraw facility on your bank account that lets you access extra funds with your debit card.

There are some drawbacks associated with these accounts, so make sure you’re prepared for the rates and fees associated. Make sure you understand the terms and conditions of your debit card before commiting.