Something which we have been repeating quite frequently on this site is that payday loans are actually cheaper than unauthorized bank overdrafts. It is worth repeating because payday loans often get a bad press, which makes it gratifying that this time it was a major newspaper that made an investigation and came to the same conclusion. In fact, the rate of interest which you can get on an unauthorized overdraft is actually quite obscene. They are a form of short term borrowing, so APR rates do have to be high… but this is quite ridiculous. In fact it is such a massive rate of APR that it won’t be revealed until later in the article.

Some unauthorized overdrafts have crazy APR rates

At Payday Loans UK we are proud of the financial service which we provide, helping people who need money fast. Usually these are emergency situations, and this injection of cash might even literally be a life saver. We are also pleased to be able to offer reasonable rates of interest. From looking simply at the APR they may not seem to be reasonable, but when you consider that that is an annual rate of interest, and payday loans are taken out for, at most, a month, you can see that it is not representative. Instead, a far better way to look at payday loans is to simply check out the fixed charge which will be applied for the amount of money you are taking out. That will tell you how much the loan will cost, and how much you will have to pay back the following month. Either that, or take a look at the APR rate when you take out an unauthorized overdraft with your bank. No, not yet, the number is too large to reveal it just yet.

So why would anyone use their overdraft instead of a payday loan? Well, one reason might be convenience. They need money straight away and think any loan application would take too long. That is not true though. At Payday Loans UK, the application process only takes a few minutes and if you are successful, the money will be in your account the same day. And you will be successful, providing you have a job that pays monthly, and it pays above a certain amount. That is, as long as you will be able to afford to pay it back the following month from your salary, you will be granted a loan.

Another reason someone might take out an overdraft instead of a payday loan is if they assume payday loans are more expensive. The press is always saying that payday loans are too expensive, and often there are calls for them to be banned despite the important service which they provide for people who need money urgently. If they got their way though, as this recent study found out, anyone who needed a short term loan would be in a terrible position as regards their interest rate.

Okay, the time has come to reveal the APR rate from one major bank’s unauthorized overdraft charges. With £200 borrowed for just ten days, there is a charge of £85.95, which makes it an APR of… wait for it… forty-six MILLION… eight-hundred-and-fifty THOUSAND,… eight-HUNDRED-and-sixty-nine… PERCENT!

Yes, APR is not representative of short term interest rates, but that is still ridiculous.

Tags: APR, emergency cash, interest rate, Payday Loans, Payday Loans UK, short term loan, unauthorized overdraft

Written by sSeaborn

Samuel Sandrock has a degree in Economics and is an expert in financial matters. He likes listening to country music and playing squash.

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