Banks Compared to Instant Payday Loans - The Real Story

The instant payday loans industry has always experienced fierce opposition from the big banking industry. Banks are keen to point out that a payday loan will have a very high annual interest rate. But on closer inspection, the comparison with banks, and the implication that banks are cheaper, is untrue.

If you are overdraw by just a few dollars, your bank will charge you an amazing thirty five dollars! The bank fee calculates at an APR of over 9 thousand percent! To avoid extremely high bank fees, a payday loan for (say) $100 would typically only cost $11 to $20. That's way less by comparison, especially when taking into account the administration costs the lenders has to carry. So the reality is that a payday loan can save you a lot of money.

Banks can also charge a daily overdraft fee. Even if the fee is only a few dollars a day, if payday is six days away, that's another $30. Even worse that that, too many unauthorized overdrafts will get your account closed and damage your credit score. It can also result in your checks not being accepted at major retailers.

Considering the high fees charged by the banks, it is understandable that they would see it in their interests to criticize the non-bank loan industry. Unfortunately their main argument, that payday loans are expensive, is undermined by the facts which show that their own fees, in comparable situations, are actually higher than instant payday loan fees.

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