UK: Banks Overdraft Fees VS Interest on Payday Loans

The interest and charges of an unauthorized loan can be as high as 46 000 000 per cent in APR.

With the charges as high as £85.95 over ten days on an unauthorised overdraft of 200, Lloyds TSB is leading the way here.  Such loan amounts to an equivalent APR of 46,450,869 per cent. Among other offenders are Payday UK and QuickQuid. These companies charge their customers £25 for borrowing £100, if paid on time. One more controversial company is Wonga, with its typical APR amounting to 2689 per cent and it can charge as little as £8 for borrowing £100.

Nevertheless, these kinds of loans are not going to be banned, since they are very popular with people in the need of urgent cash. Instead the people concerned call for the government to provide an alternative short-term credit. A spokesman for Consumer Focus told Daily Mail: 'These products are controversial, but we don't want to see them banned. We need banks to provide alternative short- term credit for cash strapped consumers.'

Loan providers, in turn, strive to save their reputation. Mike Regnier, Lloyds TSB's current accounts director for told the Daily Mail: 'We offer our customers a number of services to help them manage their money effectively and prevent them from accruing fees and charges on their account, such as free text alerts that warn customers when they are about to go over their limit.".

Moreover, in practice, there are hardly any customers who extend their payday loans for such a long period of time and end up paying such exorbitant rates.

The Office of Fair Trading calls on the lending companies to state the annual rate of charges and interest incurred as a result of the loan becoming overdrawn for the customers. As for banks, they are free to state the annual equivalent of the borrowing.