Consumers who unexpectedly run out of funds at the end of the month may be getting charged more for going into their overdraft by some of Britain’s biggest banks than payday loan firms.
The rise of people using payday lenders has quadrupled since the credit crunch began in 2008. These types of loans are designed for people who need to borrow cash for the short-term, usually a few days, before they are paid.
A new study has found that borrowing £175 for eight days could cost less than £20 with one particular payday loan company, whereas the same amount borrowed through an unauthorised overdraft could cost up to double. Experts have warned however payday loan providers should be approached with caution, as the annual percentage rate for borrowing can be more than 2,689%. Borrowers have also been hit with unexpected charges if borrowers default on repayments.
A Lloyds TSB spokesperson has said, “Unarranged overdrafts allow customers to make payments straight from their account without having to enter into a separate lending agreement with another third party”.
Payday loans are not advisable or suitable for those looking for longer-term credit or who are unable to pay off debt within a few days. Consumers in financial hardship using payday loans and unauthorised overdrafts as a way to borrow money to pay debts are advised to seek professional debt advice.
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