Payday Loans compared...

Many bank accounts offer overdrafts for their customers – acting as a safety net for when unexpected bills or expenses arise. However, new research which has been compiled about overdrafts has shed them in a rather unforgiving light. When contrasted with the charges of many payday loan companies, banks are now being criticised intensely for the heavy fees they are levying – fees which aren’t always clear to the consumer at the time.

One of the most eye-opening comparisons came between an overdraft on a current account with Lloyds TSB, compared with the same amount of money being borrowed from online payday loan lenders. An investigation assessed the cost of lending £175 for just over one week. With the payday loan provider, this was £156 cheaper than the banking alternative; potentially because of the daily £25 surcharge levied due to ‘an unauthorised overdraft’.

Despite the alarming data, a representative from the bank was quick to defend the overdraft offered and respective charges as convenient – particularly as it would prevent customers that hold an account from having to enter into a loan with a completely new company.

Payday loans are seen to be solutions which are geared directly towards consumers who need a temporary solution for a loan. It is believed that one of the reasons that overdraft charges are so unaccommodating is because of how this type of withdrawal is not purposeful for what this type of customer needs.

The benefits when payday loans are compared with bank accounts can be seen to continue further. A key example of this can be how convenient payday loans are to arrange, with many online lenders offering 24-hour applications. This can be compared with many banking institutions which only offer their services strictly within office hours in many circumstances – inconvenient for many people who could be unable to contact their institution during this time.

Further, there can be less risk for those who are taking out payday loans than an overdraft from a credit perspective. Should an inability to pay for whatever reason arise, overdraft charges can cripple a person’s prospects of repaying because of the daily surcharges levied in many circumstances. In addition, credit referencing agencies can be notified of account closures because of a consumer’s inability to repay their overdraft money in a timely manner. Following on from this, the chances that a person has of getting the bank account they desire can become restricted.

Whilst payday loans take non-repayment seriously, there is very rarely an impact on a consumer’s credit rating or credit report.

If you believe that overdrafts might have to be arranged with your bank, it can be worthwhile to go for an account which has a specialist rate for this purpose. However, there can be cheaper options found in the payday loan market even here – where there are clear definitions of how much is paid, instead of the secrecy and uncertainty which can be found in banking. What’s more, the application process can be simplified with a lender once you have borrowed with them before, and they have seen you can repay as agreed.