According to consumer group Which?, using some overdrafts can be just as expensive as taking out a payday loan.
Which? found that using borrowing £100 for 31 days with a Halifax approved overdraft would cost £30, while borrowing the same amount with Santander would cost £20. Borrowing the same amount from a payday loan company would typically cost between £20 and £37.
Going £100 into an unauthorised overdraft with the Halifax Reward current account or the Santander Everyday Account can cost £100 in charges.
Which? has urged the Financial Conduct Authority (FCA) to ban excessive charges so that charges reflect the cost to the lender. The FCA also wants to see a cap on default charges.
Richard Lloyd, chief executive of Which? said: “The Government and regulators have rightly focused on the scandal of payday lending, but they must not lose sight of the urgent need to clean up the whole of the credit market. High street bank overdraft fees can be just as eye-watering as payday loans.
“It’s time to clamp down on excessive charges and irresponsible lending, and to make sure borrowers are being treated fairly whatever form of credit they’re using.”
The payday loan industry has come under fire in recent times for their high-interest rates, but with overdraft charges potentially being more expensive it’s not hard to see why people continue to use them.
If you’re struggling with payday loans or other kinds of debts, you should be aware that there options are available to you including the new Protocol Compliant Debt Management plan which was rolled on 1 October 2013. The Debt Advisor is one of only 5 companies that have been so far been approved to undertaken these plans.
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