Payday loans - Are they a bargain when compared to banks?

The quick cash loan industry is governed by tough laws in most states and ignored elsewhere, but one truth remains the same everywhere - customers acquire those high interest loans by choice. Payday loan customers, for better or worse, know what they are buying. The payday loan industry charges rates of interest of 500-1000% from customers who In many cases can't afford to obtain cash elsewhere. No one forces Americans to apply for cash advance loans and the lenders are required to completely reveal the terms of the loan ahead of time.

Payday loans are certainly expensive, with interest rates that can top 1000% annually, but many customers pay a similarly high price for bank overdrafts without even realizing it.

Customers are not always informed of how much they are paying their banks for bad check loans or overdraft "protection" as it is often called. The overall cost of bank bad check protection is more than you might realize; a $35 fee, repaid in fourteen days' time, amounts to 910% interest per year and that doubles to an astonishing 1820% if the individual pays within a week. Many banks currently include overdraft protection as an inherent feature of their checking accounts. Overdraft fees vary from company to company, but frequently range from $20-35 per transaction. If a person writes a personal check or makes a debit card purchase for more money than he has available, the financial institution will pay the transaction, but the customer will then be charged a fee for the overdraft.

The ability to spend more money than you might have at your disposal is nice, particularly in view of the fact that few consumers ever balance their checkbook properly. The customer gets no warning if he is on the verge of overdrawing the checking account; the coverage automatically kicks in, and the fee is instantly assigned. When Americans do not know how much money they are supposed to have in their account overdrafts are all the more probable. It is unfortunate that banks or credit unions automatically include the overdraft protection feature and don't allow individuals to "opt out" of it.

Overdraft protection amounts to profitable lending, but unlike payday loans or quick cash loans, individuals don't always realize that they are even taking out a loan. If individuals understood that this protection is actually a loan, they might be less likely to make use of it, particularly if they realized that overdrawing an account by $10 still mandates a thirty five dollar fee. Overdraft protection is profitable business for the banking industry, which earns at least ten billion dollars annually in overdrawn amount fees alone.

In an ideal world, financial institutions would be required to notify consumers that such protections are in effect, and they would also be required to allow individuals to opt out if they elected to do so. Considering the current climate in Washington and Congress' rather favorable view of the financial industry, it appears unlikely that any legislation protecting consumers from above average bank charges will come along any time soon. As a method of saving a few dollars, we suggest that individuals balance their checkbooks a bit more often.