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Is It Really Better To Overdraw Your Checking Account Than Get A Payday Loan?

14 December 2017 by Albane Francois

One way people handle unexpected bills is to overdraw their checking accounts believing it's cheaper to pay the overdraft fees rather than take out loans to cover the amount. While this may appear reasonable at first, there are a few things people often fail to take into account when deciding to go this route. Here are two reasons why overdrawing your account is probably not a better option than getting a payday loan.

Overdraft Fees Can Cost More

It's not necessarily true payday loan fees are more expensive than overdraft fees. It depends on your bank and the lender you do contract with. Some banks don't charge overdraft fees, but others will ding your account as much as $39 per check or ACH draft that puts you in the red. Payday loans costs as little as $15 per $100 borrowed, so you could get a $200 loan and it would still cost less than the fees your bank charge.

And that assumes you only have one check that causes your checking account balance to go into the negative. The more checks you expect to hit your overdraft, the more you will be charged, and some banks manipulate when transactions hit your account to maximize the amount of fees you're charged. In fact, the Consumer Financial Protection Bureau confirmed that banks reorder the sequence of transactions to extract the most overdraft fees they can from customer accounts.

Thus, tapping into your account's overdraft can be a gamble. At least with a payday loan, you'll know upfront how much the fee is and you won't be charged any more when it comes time to repay the amount.

You Get More Time to Pay

Another reason why payday loans trump overdrawing your account is these loans provide you with more time to repay the debt. When you use your overdraft, your bank expects you to repay that money immediately and will take the amount owned out of any and everything you deposit into the account.

For instance, if your paycheck is direct deposited into your checking account, the bank will take part of it to pay the overdrawn amount first and then release the balance of the funds to you. Since it's done automatically, you have no control over the process and are stuck making do with whatever cash is left over.

With payday loans, on the other hand, you can always extend the repayment deadline if you don't have the money to pay the amount on the date agreed. This provides you with more control over your finances, so you avoid getting stuck in the same financial hole that caused you to overdraw your account in the first place.

For more information about how payday loans can help you out of a bind or to check the current rates, contact a local lender, like American Cash Advance and Title Loan.

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