Payday Loans Cheaper Than Unauthorised Overdrafts

Anthorn

£200 borrowed for 10 days costs £25.70p with Wonga and £87.00p with Lloyds TSB and if the unauthorised overdraft with Lloyds TSB continued for a year the APR would be over 53 million per cent! But hats off to HSBC which does it for a quid.

Those are the findings of an article from Money Mail and most likely the reason why Wonga is now expanding internationally:

http://www.thisismoney.co.uk/money/saving/article-2270230/How-sky-high-bank-overdraft-charges-force-borrowers-use-payday-lenders.html#axzz2KW6S3DJe

Hominu

Surely if you KNOW you want cash, you would request an ARRANGED overdraft rather than just going into UNARRANGED overdraft, the later obviously being far more expensive?

rb10

Hominu wrote: »

Surely if you KNOW you want cash, you would request an ARRANGED overdraft rather than just going into UNARRANGED overdraft, the later obviously being far more expensive?

... which makes the comparison rather illogical.

But ... the sensible comparison (arranged overdrafts and payday loans) doesn't make for such a good newspaper headline.

dalesrider

Anthorn wrote: »

Those are the findings of an article from Money Mail and most likely the reason why Wonga is now expanding internationally:

I pointed this out a while ago as you can do the same on a approved O/D with Halifax or any of the others that charge £1 a day.

Anthorn

Hominu wrote: »

Surely if you KNOW you want cash, you would request an ARRANGED overdraft rather than just going into UNARRANGED overdraft, the later obviously being far more expensive?

I can't see into the future. Can you?

But really you are stating the obvious especially since that aspect forms the greater part of the article: It probably goes without saying that anyone who knows they will need to overdraw in advance of the event will try to arrange an overdraft facility or an increase in the limit. But for those who can't do it in time or indeed those who have maxed their overdraft and can't get an increase or can't get an overdraft in the first place then a payday loan is cheaper than an unauthorised overdraft: That's the whole point of posting the link to the article!

Anyone who thinks that all unauthorised overdrafts happen accidentally is probably living in cloud cuckoo land!

izools

Anthorn wrote: »

I can't see into the future. Can you?

Effective money management depends upon one's ability to plan ahead.

You know how much your salary is.
You know how much any additional income you get is.
You know how much your rent or mortgage is.
You know how much each utility direct debit is.
You know how much you usually spend on groceries, travel, and entertainment, because this is all listed on your historical bank statements.

So yes, everyone has the information at their disposal to know how much they have to spend each month, have the information required to make a choice as to whether they will use an unauthorised OD or not, and whether or not they should request an overdraft / overdraft extension.

The only time an account holder would end up using a pay day loan or unauthorised overdraft is either due to a) failure to use the information at their disposal to plan effectively, or b) failure to exercise restraint and self control, or a combination of both.

dzug1

But Wonga is in effect an arranged overdraft surely? At short notice maybe but still arranged.

BugsyBrowne

There's a difference in being in debt and affording it and being in debt and struggling and I know for a fact I would rather be in debt if I was struggling to a high street bank then the likes of any sort of monkey payday loan.

If I ever opened up my credit file and see a payday loan on there I would physically be sick on my new Patrick Cox shoes.

Hominu

Anthorn wrote: »

I can't see into the future. Can you?

I know what my income is going to be over the next 4 weeks, and I know what my outgoings will be, so I can tell you what what my bank balance will be for each day of the month. This means that if my account goes negative, I can cut down on something before it actually happens, or plan for an overdraft or loan weeks before it's needed.

If you are already at the stage where all your cards are maxed out and your overdraft is at its limit, the you are doing something wrong and taking out a loan from Wonga is only going to make things worse by adding interest on top of funds you can't afford already.

So no, I can't see into the future of everything, but I can predict the future of my finances.

Anthorn

Hominu wrote: »

So no, I can't see into the future of everything, but I can predict the future of my finances.

That's you but it's not everyone is it. If Pay-day loans were not in demand then companies like Wonga would not be making such high profits and would not be expanding into other countries. People will go to their bank at times of need but if the bank refuses or the account holder believes that the bank will refuse then a pay-day loan is the preferred option. The pay-day loan companies are serving a niche market which is created by the banks!

I'd say read the article because in relation to that article your comments are at best off-topic and at worst failing to make sense!

antrobus

Which? credit expert Martyn Saville commented: 'For payday loan companies to claim that they're cheaper than unauthorised overdrafts is, in most cases, true. But that's only half the picture: payday loans and unauthorised overdrafts both offer poor value for money and should be avoided wherever possible.

http://www.which.co.uk/news/2011/09/payday-loans-and-bank-overdrafts-compared-266802/