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Are Payday Loans More Reasonable than Banks?

Written By On 22/02/2013

Payday providers have acquired a bad name for being responsible in causing people's financial problems because of high interest charges, but there is a very strong argument that they are more reasonable than the banks.

The Chartered Institute for Securities and Investment made a comparison of a £200 unauthorised short term overdraft from a standard payday loan provider against Lloyds and Nat West Banks.

They state that the charge for a £200 loan from the lender was £66. Apparently though, the charge for the same loan from Lloyds Bank was £84.22, which equals an APR of over 2,200%, and Nat West was even higher charging £110, which equals an APR of more than 4,000%.

Whilst strict regulations have come into force making sure that payday companies must have their APR rates clearly displayed, apparently it is not a necessary requirement that banks need show their fees for overdrafts and charges that their customers will receive if they go into unauthorised bank overdrafts.

It appears that banks are receiving massive profits if their customers become overdrawn without authorisation by just a few pence as they will face exorbitant penalties.

Simon Culhane, Chartered FCSI and CISI CEO, said:

Late last December the Government, as part of the Financial Markets Act, undertook to introduce a cap on the amount of interest that can be charged on a loan. However, legislation was aimed at payday lenders. The scandal isn't the rates charged by payday lenders but the rates charged by banks.

CISI press release