Family Issues

There is a new trend emerging nowadays regarding the choice of securing a loan. Payday loans are getting preferential treatment from consumers over bank overdraft programs. In the past, the latter was the popular loan program but not anymore when consumers started to realize that payday loans are more practical and economical than their bank’s overdraft fees.

A newspaper ran a report stating that several national banks is the United States have been encouraging their clients with low balances to overdraw their checking accounts. Why is this? Overdrawing on your checking account allows the bank to curtail credit laws and amass billions of dollars from new fees. Bankers have been heralding overdraft programs as great service to their clients because they also cover bounced checks. This article will show you how bad a deal the overdraft program is.

A typical credit, for example, charges on the average an annual interest of up to 20% while an overdraft program impose flat fees for every overdraft transaction. This translates to a yearly interest rate of more than 1,000%. Overdraft programs also require customers to bring their low balances to positive levels in only a matter of days unlike other credit means which allow clients to pay loans when it is most convenient. Add the fact that traditional credit lines have thousands of dollars as credit limits while an overdraft plan only have limits starting from %100 to %300. A bank will start bouncing checks again after the overdraft is spent.

The same newspaper report also claimed that the wild success of overdraft programs has made banks richer. This has been attested by several private consultancy firms and statistics from bank regulators of the government. A certain bank—one of the largest financial institution and the top promoter of overdraft programs—has already charged customers over $1 billion in overdraft fees within just one year!

Overdraft programs—which charge of up to $35—are actually high-interest loans that target the working class and automatically works with checks and debit cards unlike payday loans that only charge flat fees. Customers who applied for overdraft programs are often left in the dark until they get a notification from their banks stating their overdrawn savings and checking accounts.

Banks are certainly taking advantage of the dire situation of people’s finances these days. They know that most consumers are having a hard time lasting through the next payday. And banks are getting greedier when it has been reported that they have already raised the overdraft fees 24 percent higher. There’s also a new banking software program that automatically process first the largest checks and debits.

So the next time you consider a loan, avoid your bank’s overdraft program.

[Tags]Bad Credit, Debt, Bankruptcy, Credit Repair, Money Lenders, Credit Cards, budget, Unpaid Debts, Credit Reports[/Tags]