There is often a lot of talk in the press about how expensive payday loans can be. What they often fail to mention, however, is that the only alternative for most people is even worse. Also, as long as the loan is repaid on time then the charges are entirely reasonable. So what are the differences between a payday loan and an unauthorised overdraft?

Who would win in a fight between payday loans and unauthorised overdrafts?

Interest Rates

The actual amount of interest that you have to pay on a payday loan is comparable with what you would have to pay with a normal loan. Of course it might seem higher because you have to pay it all back in one go, instead of having the costs spread out with a long term loan, but that is unavoidable. If you want a short term loan fast, then one of the things you have to accept about that is you have to pay it all back in short order.

If you go into unauthorised overdraft instead though, then it can end up costing you a lot more. If you’re only in overdraft for a day or two then it might be cheaper, but if you’re talking about weeks then the charges will mount up quickly. For example you will usually incur a daily charge, often in the region of about £5. So if you can’t afford to repay a payday loan within a month, you’ll certainly be racking up a lot of charges on your unauthorised overdraft.

What some people mistakenly concentrate on, however, is the APR. It’s not really fair to look at that too closely with payday loans though, because it shouldn’t be taking you anywhere near a year to pay it back. That’s why the thousands of percent that applies to it should be practically meaningless. If you do look at that though, then in comparison it’s not unheard of for an unauthorised overdraft to have an APR of tens of millions of percent.

Ease Of Use

If you need money literally immediately then you might have to go for an overdraft. That way you can just use your bank account in the normal way. If you can afford to wait even a few hours though then a payday loan can be just as useful. With same day payday finance, from the time of application to the time the money is in your account will only be several hours.

You can also get a payday loan anywhere that you have access to the internet. Even if you’re not in the country at the time then, you’ll still be able to get a short term loan to tide you over for whatever financial emergency you are having.

Debt Traps?

Some people call payday loans a debt trap because the charges increase quite dramatically if you don’t pay back in time. What you have to take into account, however, is that these are short term loans so if you take two months, rather than the one month that you are supposed to take to repay, then you’re taking twice as long to repay as you are supposed to. It would be like taking two years to pay back a one year loan. The charges are bound to be quite high.

With an unauthorised overdraft though, the bank can charge whatever they want because you are using money you are not supposed to. And as already pointed out, their charges can be extortionate.

Payday Loans UK

If you are in need of some short term financing then, Payday Loans UK will be able to help you out with a fast, and competitively priced loan. This will be far cheaper than using an unauthorised overdraft.

Tags: interest rates, payday financing, Payday Loans, Payday Loans UK, same day, unauthorised overdraft

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Ken Heading keeps up to date with all the financial news in the UK, particularly as it affects payday loans, and enjoys writing on this subject.

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