- Almost half of Brits (45 percent) don’t know which offers best value or which is safer (46 percent)
- Over one in four (29 percent) feel an unarranged overdraft is worse value than a payday loan
- More than a third of Brits (34 percent) believe it’s harder to understand the financial implications of an unarranged overdraft
- Two thirds (68 percent) have no idea how much overdraft fees are costing them
With Blue Monday looming, many Brits are facing up to six weeks since their last pay day and those feeling the squeeze may resort to dipping into their overdraft or perhaps even consider a payday loan to get them through January.
Whilst the Financial Conduct Authority is taking steps to address the high fees incurred from unarranged overdrafts and capped charges on payday loans, research from personal finance comparison website, finder.com, shows that adults in the UK are still uncertain on the implications of either. A large percentage of Brits are unsure which offers best value (45 percent) or which is safer (46 percent), revealing many of us are still in the dark on the overall cost involved for taking out a payday loan or using an unarranged overdraft.
Over one in four Brits (29 percent) feel an unarranged overdraft is worse value than a payday loan, and a third of people (34 percent) also believe it is harder to understand the financial implications of an unarranged overdraft.
Shockingly, two-thirds of Brits (68 percent) with an unarranged overdraft have no idea how much it’s costing them. Previous research from finder.com also estimated that the nation’s overdraft debt could be more than £9.4 billion.*
Analysis of eight major UK banks found that unarranged overdrafts were costing customers £5‒£10 per day, with monthly fee caps averaging £81. With some banks, customers going just £25 beyond their authorised limit could be faced with charges as high as £100 over a month. Conversely, those looking to borrow £100 through a payday loan would have their charges capped at 0.8 percent per day, but this would still leave them having to pay up to £25 over a month.
Millennials most critical of unarranged overdrafts over payday loans
Millennials are most likely to believe that overdrafts are a worse option, with over a third (35 percent) feeling they offer less value than payday loans, and 38 percent claiming it is harder to understand the financial implications.
West Midlands residents are the most likely to mistrust and misunderstand overdrafts
Regionally, those residing in the West Midlands are the least in favour of unarranged overdrafts, with over a third (38 percent) claiming they are worse value than payday loans. Those in West Midlands are also the most likely to find it harder to understand the financial implications of an unarranged overdraft (42 percent).
Londoners are the least trusting of overdrafts
Londoners are the least trusting of unarranged overdrafts, with almost a third (32 percent) believing they are less safe than payday loans. Despite not knowing how much it’s costing them, those in the East Midlands are the most trusting of unarranged overdrafts with over a third (34 percent) claiming they feel safer than payday loans.
Regionally, people in the East Midlands (77 percent), the South East (74 percent) and London (72 percent) are the worst at knowing how much they’re getting charged for unarranged overdrafts. However residents in Yorkshire and the Humber are the most tuned-in with 42.5 percent aware of fees.
Commenting on the findings, Jon Ostler, UK CEO at finder.com, said: ‘‘It’s reassuring to see the Financial Conduct Authority is putting steps in place to regulate overdraft charges. The plan to implement an annual percentage rate will help consumers to compare the costs, including hard-to-justify flat daily fees, involved with both authorised and unauthorised overdrafts.
“However, before you consider borrowing money it’s important to do your research and understand the fees associated with each. If borrowing money is unavoidable, it’s worthwhile considering all your options such as negotiating a new overdraft limit, switching to a current account with more favourable overdraft terms, taking out a credit card with interest-free days or borrowing from friends and family. As with any debt, it’s important to set yourself a timeframe for paying it off.”