responsible borrowing
  • Home
  • About us
  • News
  • About borrowing
    • Types of loans
  • Responsible borrowing
    • Consumer rights and responsibilities
  • Evaluate your lender
  • Loan FAQ

responsible borrowing

  • Home
  • About us
  • News
  • About borrowing
    • Types of loans
  • Responsible borrowing
    • Consumer rights and responsibilities
  • Evaluate your lender
  • Loan FAQ

Unplanned overdraft fees costlier than payday loans

September 18, 2016

Payday loans continue to make headlines across Europe, but this time for different reasons to those you might expect. A number of commentators and consumer groups, such as UK’s Which? are highlighting the importance of financial planning against drawing on unplanned overdraft facilities. The latter are far more expensive than facilities offered by specialist short term credit providers, also known as “payday loans”.

Today’s consumers regularly turn to unauthorised overdrafts to meet short-term financial needs over taking out payday loans, mainly because borrowers are often unaware of the significant charges associated with unauthorised overdrafts. Overdraft facilities offered by reputable high street banks carry less stigma than applying for pay day loan facilities from less well-established specialist short term credit providers. However, they prove to be more expensive and their products are less competitive than those offered by specialist short term credit providers.

Borrowers who exceed their agreed overdraft can be subject to costs as much as £90 for one month from some UK high street lenders, four times more than the cost of a payday loan.

On 1st January 2015, the Financial Conduct Authority (FCA) in the UK introduced a cap on the cost of borrowing a payday loan at a maximum of £22.40 per £100 borrowed for a period of 28 days. No such cap exists for charges related to unauthorised overdrafts.

While charging structures differ from bank to bank, Which? found that the cost of using an unplanned overdraft could be up to 12.5 times higher when including interest payments or possible unpaid item fees, or when the money was borrowed over two monthly charging periods. These excessive levels of charging are caused by the maximum charge being related to the charging period, rather than for how long the money was borrowed for, as is the case with a payday loan service.

A spokesperson for Which? has called for unauthorised overdraft fees to be set at the same level as authorised overdraft charges. The call is for the Financial Conduct Authority to review overdraft charges in the context of other forms of credit. Similar trends can be seen across Europe and the USA, where short term credit providers, unfairly labelled as less legitimate routes of borrowing, are facing increased levels of regulation over their more traditional counterparts. This research highlights that when it comes to personal financial planning, it is important to know the cost of borrowing money from different sources.

Know the cost of borrowing

  • Make sure you read the small print on any loan or credit you take out
  • Set up alerts on your phone or via email to keep up to date on your balance
  • Please see “Evaluate your Lender” section of the website for tips on how to assess your loan provider

Links

http://www.bbc.co.uk/news/business-36746372

http://www.cityam.com/247256/unauthorised-overdraft-charges-can-cost-consumers-more-than

http://www.growthbusiness.co.uk/growing-a-business/business-finance/2540456/bank-overdrafts-more-expensive-than-payday-loans.thtml

https://www.ft.com/content/b5acdcb0-4515-11e6-b22f-79eb4891c97d

https://www.theguardian.com/money/2016/jul/09/unplanned-overdraft-fees-four-times-costlier-than-payday-loans

https://press.which.co.uk/whichpressreleases/overdraft-charges-more-expensive-than-payday-loans/

Unplanned overdraft fees costlier than payday loans was last modified: September 18th, 2016 by Juris Petersons

You may also like

The responsible borrowing platform is here

July 6, 2016

10 ways to improve your credit score

September 28, 2017

What to do when someone has taken a loan in my name?

July 6, 2016

Read between the headlines and be careful what you sign

March 2, 2017

How to keep your money safe while travelling?

August 7, 2016

What is a short-term loan?

July 6, 2016

4finance launches financial education platform www.ResponsibleBorrowing.com as part of a responsible lending initiative

July 14, 2016

What is FinTech and why it matters today

October 27, 2016

How do bans on payday loans affect consumer borrowing behaviour?

August 26, 2016

5 New Year’s Financial Resolutions

December 20, 2016

INITIATORS

logo_footer

Keep in touch

mail press@4finance.com

logo_footer

Although the content of this website has been carefully prepared, this website is provided without any representations or warranties, either express or implied, including any representations or warranties as to the availability, accuracy, or complitness of this website or its content. The information contained on this website is intended for informational purposes only and may not be suitable for your specific circumstances. If you require advice in relation to any legal or financial matter you should consult a professional advisor.
© 2016 4Finance. All rights reserved.


Back To Top

This site uses cookies to ensure its best performance and allow us to see how the site is used. You can find more information on how we use cookies in our cookie policy. By using this website you agree to our privacy policy and use of cookies. If you do not agree with the use of cookies, please see part How to control cookies to learn how to avoid cookies.

I agree