Loans Information |
Why Bank Overdrafts May Be a Bad Deal For You
Many banks actively encourage their clients with low balances to overdraw their accounts. That means, if the customer writes a check or uses her debit card and has insufficient funds in the account, the bank clears the check by granting a temporary overdraft (a short-term loan), up to a specific limit. The customer is saved from the problems of bounced checks or interrupted shopping sprees. Sounds like a good deal for the customers, right? That's what the banks say. They claim overdrafts are an added convenience to customers. The truth is, they're often a very bad deal for the customers. Here's why. When a bank grants a regular line of credit, the interest charged may be up to say, 20% or so. However, for overdrafts, banks don't charge interest -- they charge a flat fee on each transaction. This fee does not depend on the value of the transaction. Let's see how that works. Overdraft plans fees may be as high as $35 per check. We'll assume a more conservative fee of $20 per check. If you have four checks totaling $200 that have insufficient funds against them and the bank automatically activates the overdraft and clears those checks, you will owe $80 in overdraft charges. Unlike revolving lines of credit which you can repay at your convenience, an overdraft has to be settled in just a few days. Let's say the bank allows you to run the overdraft for 14 days. A loan of $200 for 14 days incurring charges of $80 translates into an Annual Percentage Rate (APR) of 1043%! A "convenience" for customers? Not at these rates. What does this remind you of? It reminds me of payday loans and cash advances. Those are the other forms of lending which charge you such sky-high APRs. In fact, if you choose to repay a cash advance on due date and not roll it over, you'll likely be charged far less than what the banks charge you for an overdraft. It gets even worse. Banks have software that ensures that your largest value checks and debits get processed first. There may be some logic to that. However, this arrangement also means that when there are insufficient funds in your account, instead of paying one overdraft charge on one large check, you pay several charges on several smaller checks! Plus, most customers don't even realize that they are overdrawn until the bank notifies them about it. Consumer advocates say that banks are perfectly aware that many people barely make it from payday to payday. These customers typically have very low balances. Rather than offer them a service that would be in their interests, banks extract high fees from them to cover bounced checks. If you are caught short between paychecks, consider arranging funds from other sources rather than turn to overdraft protection. The best solution to the problem is to systematically build up cash balances so that you don't face such a situation in the first place. About the Author Prakash Menon is a financial expert and writer specializing in managing personal debt and providing wealth building solutions. He has written on signature loans, personal debt management and other topics.
MORE RESOURCES: Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting |
RELATED ARTICLES
A Beginners Look at Secured Homeowner Loans Secured homeowner loans come in a variety of different types and amounts, and are intended for a wide variety of uses.These loans can be used for the same purposes as most personal loans? they can allow you to purchase a new car or other vehicle, pay for education expenses, make improvements or repairs to your home, or even consolidate several debts into a single low monthly payment. The Ins and Outs of Loans for Military Under the microscope loans for military really are different from civilian loans. Some things are the same such as your application must be approved, you still pay the loan back in an allotted amount of time, and you still have a set interest rate. Guide to Unsecured Loans Outlined below is a guide to unsecured loans. It will give you a better understanding of what an unsecured loan is as well as what to consider before applying for one. Buy Now And Really Pay Later! With UK personal debt breaking through the £1 Trillion mark last year, it's safe to say a large number of the UK population is in debt. This comes in the form of outstanding car finance, bank overdrafts, credit card bills and many other factors. How To Easily Find A Military Loan Military members the price for serving your country and defending freedom is difficult, fortunately finding the right loan to fit your situation doesn't have to be when you know where to look. Finding a loan provider that understands the pressures and time constraints that many military members are currently going through can be difficult and downright depressing. High Risk Personal Loans - Revive Frustrated Loan Hunting Attempts with High Risk Loans Bad credit seems like an unfinished business, you can't shake it off, and you can't move on without putting it away. Unfinished business is meant to be finished. Education Loans Can Augment The Boundaries Of What You Can Achieve Education never ends - it is not said without reason. We are educated all our lives and getting an education not only is a great achievement but something that gives you the tools to find your own way in the world. Debt Consolidation Tips Here are some useful Debt Consolidation tips. Debt consolidation is a loan used to repay several other loans. Military Payday Loans - When's The Best Time To Avail Of These? What are the opportune times to avail of military payday loans? The best time to take out military payday loans are when you find yourself temporarily short of funds and see the loan as a temporary measure to tide you over until your next pay check.Other such situations where you find yourself financially strapped are the following:1. A Little Lesson on Loans The opportunity to spend money is everywhere. There is no shortage of places that will take your cash. Benefits of a Home Improvement Loan Some of the many benefits of a Home Improvement Loan are outlined below. Home Improvement Loans are ideal if you need more space but cannot afford to move house. Making Your Business Happen with a Commercial Lender If your home business is starting to overflow from the office into other parts of the house, it may be time to consider finding a building large enough to handle your startup's rapid growth. However, most businesses are unable to generate enough revenue at this phase of growth to allow for the outright purchase of a new facility. A Brief History of Loans No one can say for certain where the history of loans began? it's likely that people have been practicing lending and borrowing for as long as there has been a concept of ownership.The history of loans can be documented at least several thousand years back; forms of lending were evident in ancient Greek and Roman times, and monetary loans were even mentioned in the Christian bible. Cash Advance Payday Loans The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans - which come at a very high price. Guide to Bridging Loans Here is a useful guide to bridging loans. This is a loan that is usually taken out to solve a temporary cash shortfall that may arise when buying a property or business. How to Spot and Avoid Predatory Lending Predatory lenders promise loans that are "too good to be true" and pressure borrowers to take them on the spot. Here's a few things you or your family and friends should know about spotting and avoid predatory loans:How to Spot a Predatory Loan*Balloon payments. Car Loans - Shop Around, Compare Offers, and Watch The Small Print Getting a loan to buy your new car is, you would probably think, straightforward. However, there are a few apparently small variations which can be actually cost you a lot of money. Secured Car Loan - if Car Signifies a Second Home to You Cars - they are your passion, necessity, luxury, earning member. They have speed, they have music, they have curves, they have comfort, they have security, they have safety - they have something for everyone. Business Credit Scoring: Is It a Killer Application or Application Killer? In his 1968 seminal novel, 2001: A Space Odyssey, Arthur Clark introduced HAL, a spaceship computer with artificial intelligence. Mission engineers designed HAL to carry out an array of technical orders to safeguard the ship's mission. What is a Bad Credit Personal Loan? A UK Bad Credit Personal Loan is a loan designed for the many people with a bad credit rating. A bad credit rating can make your life a misery. |
home | site map | contact us |