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Payday loans come on top against unauthorised drafts
New research has found that taking out a payday loan is a lot cheaper than taking an unauthorised overdraft from banks like Lloyds TSB.
The latest findings have found that a person who wants to borrow a sum of £150 over a 10-day period would be charged three times more interest in a Lloyds TSB current account overdraft than they would by going to one of the many payday loans sites available on the Internet.
Lloyds TSB came out as one of the worst banks for additional interest on unauthorised overdrafts, with Halifax coming in a close second. If a person was to withdraw £150 from a current account with no balance in an overdraft, Halifax would charge £50 to their consumer instead of the £66 that Lloyds Banking Group would – if you get the calculator out that is an astounding £16 worth of difference.
All of this comes in comparison to the interest fees which are charged on usual payday loans over a 10-day period. A person who withdraws exactly the same amount of money but through one of these lenders could expect to pay just over £20 in interest, £30 less than Halifax charges when one of their consumers goes overdrawn.
Despite the criticisms, Lloyds TSB remained stoic about their interest rates. They said in a statement that the tariffs charged to consumers who went overdrawn were very clear, and that they did all they could to raise awareness to their bank customers about what to expect in the case of unauthorised overdrafts.
In addition, a spokesperson also said that using the service of an unauthorised overdraft was more convenient than a payday loan as there were no credit checks needed, saying: “A payday loan is a fixed-term loan for a short period of time – an unarranged overdraft is a variable-term loan from the bank that allows customers to make payments immediately, directly from their account using a debit card, direct debit or standing order, without having to enter into a separate new lending arrangement with another third party.”
The moral of the story remains that consumers need to check the small print of any financial commitments they are considering making, particularly if it involves making credit agreements in the current financial climate. Because of the recession, there are some people running the risk of taking much more than they can chew.