Bank overdraft charges have been big news for a long time now: thousands of us have managed to claim back unfair bank charges from unscrupulous banks.
But a landmark ruling from the Supreme Court in November 2009 put an end - for now at least - to customers claiming back on their overdraft charges, something that has led to an increasing amount of resentment among customers towards their banks: research published in January by Money.co.uk revealed that just 7% of the population completely trust their banks to treat them fairly, whilst one quarter do not trust their banks at all.
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The findings of the Money.co.uk study claim that the majority of customers do not believe banks are doing enough to help customers avoid running up unauthorised overdrafts, for example when they allow customers to access cash and debit card purchases when funds are not available in their accounts.
Although they may not admit it publicly most High street banks are happy for their customers to go overdrawn because they can reclaim any expense from them by dolling out hefty penalty charges for going overdrawn. The charges - which can be as much as £30 a pop for going only slightly overdrawn on your account - are so high in fact that many observers are now claiming that a payday loan is actually more value for money compared to going overdrawn on your overdraft.
Unlike typical forms of borrowing bank overdraft charges are paid-for by fixed fees for every transaction going over the limit. And with overdraft charges often as high as £30 for each transaction, it can cost an awful lot of money.
But one of the most annoying things about overdraft charges is that the majority of customers don't even know they have gone overdrawn on their limits until they are notified by the bank, but by then it is too late as the charge to the bank account has already been done.
But are payday loans a real alternative to going overdrawn and paying excessive fines? Payday Bank, the UK's leading online payday loans broker, believe they are. The company claim that the high APR rates typically associated with payday loans only act to confuse consumers and should be ignored.
Ohad Hessel, Marketing Manager at PaydayBank.co.uk says that while the APR on a typical payday loan can look very expensive at first glance, this yearly calculation is the wrong way to compare them to other types of loan.
"APR is the wrong way to judge payday loans because they are short term loans for relatively small amounts of money, designed to be repaid quickly," he said.
Hessel claims that if you took out a loan of £500 at an APR of 16.9% and paid back over 3 years it would cost you £745 to repay the total - an actual interest rate of 49%.
On a payday loan of £500, undertaken with the aim of paying it back on your next payday a month later - this would cost you £625 - or just 25% interest.
Are payday loans the answer? At a time when getting a loan from normal banks is proving increasingly difficult and the banks appear to make no effort to halt their excessive charging habits, if you can afford to pay back the loan quickly the following month then a payday loan could save you money. But remember payday loans are designed to be short-term no credit check cash loans so if you do take one out pay it back as soon as you can to avoid creating future debt problems.
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