Unexpected costs can sometimes catch us at unfortunate times. When this happens because of a direct debit, or a transfer into your account taking longer than expected, it can cause your bank account to become overdrawn.
There are usually costs associated with unplanned overdrafts.. So in some cases, it might be better to get a cash loan to cover your costs instead.
Here’s what you need to know about the costs of cash loans and unplanned overdraft fees.
OVERDRAFTS ARE FOUR TIMES MORE EXPENSIVE THAN PAYDAY LOANS IN THE UK
The Guardian reported last month that unplanned overdrafts on bank accounts could be up to four times more expensive than payday loans over a 28 days period. This is because the fees and charges of payday loans in the UK are regulated whereas bank overdraft fees are not, allowing them to charge whatever they want.
A loan of £100 from a payday lender would attract total fees and charges of £22.40 while a £100 overdraft at some of the UK’s biggest banks will cost the customer £90 over the same time period. You can read the full article here.
While the Guardian’s report was based banking policies in the UK, it’s worth considering how the Australian banks compare. When you get caught short of cash, make sure you know all your options so you can make the right decision for you.
COMPARING THE COSTS
The relative costs of short term cash loans and unplanned overdrafts will depend on many factors. Each bank and lender will have their own policies and charges.
Some of the things that can impact the costs of an overdraft or cash loan include:
- Policies of the bank or lender.
- Amount borrowed or overdrawn.
- Time taken to repay the debt.
In some cases, cash loans and unplanned overdrafts can come with very similar costs and, in some situations, cash loans are actually cheaper.
Many banks will charge a daily fee for being overdrawn which is capped at a certain amount per calendar month. If the overdraft period falls over two calendar months, then this can double the fees you are charged. The following example shows how this can occur:
|Amount borrowed / overdrawn||Time taken to repay||Fees and charges||Total amount to repay|
|Club Money cash loan||$250||28 days||$50*||$300|
|Unplanned overdraft||$250||28 days||$60-$120*||$310-$370|
*Note: Overdraft fees are estimates based on a $6 daily fee, capped at ten business days per calendar month. The 28 day overdrawn period could fall over two calendar months. Actual fees and charges may vary, always check with your bank for information on their policies and charges. Cash loan fees are based on a discount offer without any dishonour fees, conditions apply, see Fee Statement for more information.
WHAT ELSE SHOULD YOU CONSIDER?
Another important factor that you need to consider is that unplanned overdrafts could be recorded on your credit report. Unplanned overdrafts and other banking problems could have a negative impact on your credit history and make it more difficult to secure finance in the future.
In some cases, your bank will not allow you to have an unplanned overdraft. For example, if a direct debited bill puts your account into negative balance, your bank may reverse the direct debit and charge you a dishonour fee instead, these are often around $30.
This is bad situation to be in since you will be charged a dishonour fee without being given the flexibility to go into negative balance for a short time.
KEEP YOUR FINANCES UNDER CONTROL
If you do find yourself caught short of cash, it’s important that you’re able to deal with the situation on your terms.
If you know what your options are and how much each one will cost, then you can make the right decision for your circumstances.
Get the information you need to make an informed decision, find out more about Club Money cash loans.