A Closer Look at Payday Loans vs. Bank Penalties & Overdraft Fees
According to the Guardian "many banks are encouraging clients with low balances to overdraw their checking accounts, allowing the banks to avoid credit laws and collect millions of pounds in new fees." Also, "the rapid spread of the programs has turned overdrafts and the fees that come with them, into one of the largest sources of profit for banks" You might now realize that payday loans are actually much more economical than paying costly overdraft fees to your bank.
Some banks say that overdraft facilities, which cover bounced-cheques and allow people to overdraw their accounts, are a service to their clients. But these overdraft programs could be a bad deal for many clients, including you!
Unlike typical lines of credit, which charge annual interest of up to 20 percent, overdraft plans charge flat fees for every processed overdraft. The penalty can be as high as £30 per overdraft transaction, translating into extremely high APR%. These plans require that you bring accounts back into positive balance in a matter of days. After this overdraft is expended the banks again start bouncing checks and charge high penalties.
Industry analysts claim the overdraft plans are really high-interest loans targeted at working-class customers. Unlike payday loans, which charge only a regulated flat fee for providing direct cash, bank overdraft programs work automatically with checks and debit cards. Customers often don't even realize they have overdrawn their checking and savings accounts until they are notified by from the bank. According to these analysts, banks may take advantage of this situation and only notify their customers after they have overdrawn their limits.
And it gets worse: Banks have sophisticated software programs that ensure that your largest checks and debits are processed first. This means that, if your account is going to go negative and overdraft is required - a higher number of smaller transactions will each incur the overdraft fees. Add in the average merchant penalty of £15 per returned check, and five overdraft items for £200 could add up to almost £225 including charges! By contrast, pay day loans for £200 would incur fees of only £45-£60.
If you take a look at your current bank fees for overdraft and bounced-cheques, you may quickly realize that obtaining a payday loan can be very beneficial. It's like fooling your bank and beating them on their own game...
