People in difficult financial situations—including those with bad credit—typically endure an uphill battle in finding viable financial solutions. In such cases, the most common options for short-term loans are payday lenders or traditional bank overdrafts.
Unfortunately, consumer advocacy groups tend to paint payday lenders as the bad guys due to their high-interest rates for payday loans. But by looking at financial data, this criticism is more-or-less unwarranted with what banks charge for overdrawn accounts.
The Hidden Truth of Traditional Bank Overdraft Fees
A rarely discussed topic among consumer advocacy groups is traditional banks raking huge profits from unscrupulously high fees on insufficient funds. According to data from the Consumer Financial Protection Bureau (CFPB), banks make more than $17 billion annually from insufficient funds and overdraft fees.
Unless consumers take an active initiative to monitor their bank accounts consistently, insufficient fund fees can quickly add to exorbitant amounts. For example, let’s assume that a bank charges an average fee of $35 for every transaction that exceeds the level of funds in a checking account. A slight $10 overdraft could result in a $35 NSF fee, equating to an interest rate of 350% (per transaction).
To make matters worse, news reports—and even lawsuits—suggest that some traditional banks purposively manipulate the system to claim more overdraft fees. The prevalence of these overdraft practices is reiterated by articles appearing in Forbes and ABC News. The subject of burdensome overdraft is even touchier today amid the COVID-19 crisis as banks capitalize on unsuspecting account holders to make huge profits.
The Less-Discussed Benefits of Payday Loans
Contrary to traditional banks’ overdraft facilities, payday loans are structured to be transparent and upfront with their fees. Sure, the interest rates may be higher than the average APR of credit cards—but this is to offset the higher risk of default.
Despite operating like high-interest loans, banks are not mandated to disclose their overdraft fees in terms of APRs. This nondisclosure means that a customer may incur triple (or even quadruple) interest rates without their knowledge. On the other hand, payday loans typically have a flat rate, and state laws regulate the chargeable amount.
PayDay Loans are as Fast and Easy as One Can Get
It’s also worth noting that payday loans are easily accessible and available to consumers with low-income or lousy credit. This availability makes the short-term cash advances an invaluable resource for consumers who’ve been turned down for traditional bank loans.
Easier to access, fewer lending requirements, available to people with bad credit, and unsecured – the benefits of payday loans over traditional bank overdrafts should not be understated. With this in mind, it’s advisable to steer clear of overdraft fees and other predatory practices in the mainstream banking industry.
If you find yourself in a tough financial situation, short-term cash advances from payday lenders offer a more transparent, cost-effective, and useful solution that overdrawing your account. Reach out to Cash Fast Loan Centers for more information on affordable payday loans to cover your bills or financial emergencies.