| |
| |
|
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:
Loans - Google News |
|
|
|
RELATED ARTICLES
Bad Credit Personal Loans - Pertinent Pedestal for a Financial Resumption In the arena of loan borrowing, there is hardly an opponent more difficult to tackle than bad credit. Bad credit implies that your personal credit history is integral and decisive in making the personal loan available for you. Bad Credit Car Loans - Why They Are Easier To Get Than They Ever Have Been Car loans are easier to get by using an online financing company, even if you have bad credit. You can compare financing rates for the purchase of a new or used car, apply in minutes, and receive a blank check within days. Secrets & Benefits of Secured Loans Borrowing money has become more and more popular in the UK over recent years, and this is partly due to the fact that it has become far easier to borrow money. The rising popularity of consumer finance has also been aided by the wide variety of deals and the low interest rates available these days. How To Save Money On Car Loans Have you noticed that everyone seems to have a newer car than you? There's good news. You can find a way to upgrade your old clunker to a newer model. PayDay Cash Advance Loans - The Benefits of Using the Payment Protection Plan Payment protection plans are offered by payday companies to protect you in any number of unexpected situations. The payment protection plan is an inexpensive form of insurance that payday companies offer on all payday loans. Money With The Click of a Mouse Online payday loans seem to be popping up everywhere. A simple web search will positively crowd your screen with online payday loans sites hoping to get your business. Unsecured Loans The term unsecured loan relates to a loan which is not secured on any physical asset or other legal entity.To understand the term unsecured loan we will first look at the opposite, the secured loan:Many loans can be secured on physical items or other assets such as intellectual property rights. About Personal Loans What are personal loans? They are unsecured loans that a borrower obtains for various purposes. This type of loan is often used to consolidate outstanding debt into one monthly payment, but it can be used for other things such as paying for a wedding, a vacation, or something similar. Loans - Good or Bad Debt? When borrowing money it is usually because we lack the cash to make a large purchase, such as for a car, home or education. However, an important question to ask yourself when borrowing is if the purchase you would like to make is creating good debt or bad debt. Are You Ready for Your Students Student Loans? Your son or daughter is a high school senior and your worried about the coming year, and more importantly, the coming student loans? College has become so important in your children's future that parents have begun to plan for it at their child's birth. But, not all of us, as new parents thought that far ahead or could afford too. A $500 Payday Loan Can Help In an Emergency A $500 payday loan can be a real life saver during one of life's financial emergencies. Whether it is a much needed car repair or an unexpected bill, payday loans can provided extra cash while helping you keep a good credit history. Applying For a Student Loan Studying at college can be an expensive business and you are likely to be considering taking out a Student Loan to help you meet all our costs. Before you make a decision on which of the thousands of Student Loans that are available is right for you it is important to weigh up all your options. A College Loan Will Finance Your Education! A college loan has given people all over the United States a chance to further their education, even if they are not making a lot of money. Education loans can be a big help in paying for college. Military Payday Loans! The Before Pay Check Financial Fiasco, is History Now Working under the most prestigious service of the country - military - and still struggling with ends to meet! Are finances crumbling on you? And you thinking of another job? Will it easy to maintain two jobs? How would it affect your life? Is there a guarantee that the second job will solve the financial crunch? Military payday loans can offer respite from these queries, if your cash problems are temporary.'Temporary' is the term to concentrate when you are applying for military payday loans. No Income Verification Loans - When Income Doesnt Show on Paychecks Financial statements, salaries, income proof, documents, paycheck, W-2 forms, 1099's - there is an exhaustive list of some of the forms that you may require to provide for a loan. Income documentation is not always easy for someone who is self employed or retired or for any person who doesn't have a fixed source of income. Personal Loans - To Make A Personalized Financial Agenda The phrase 'tailor-made' ought to be made for personal loans. Personal loans have become relatively easy to acquire in UK. A Renter in Debt? Take Out a Bad Credit Personal Loan On average, homeowner households earn 95% more than renting households per year. With 26% of a rental households disposable income being spent on renting, in comparison to 15% of homeowners on their houses (not including maintenance), it is unsurprising that people who rent find it harder to manage and turn to bad credit personal loans for help. 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. How To Apply For a Business Loan Worried about how to apply for a business loan? Although it may seem like a daunting task at first, it can be made less so by careful preparation. When applying for a business loan, you must prepare a written loan proposal. What's All the Hype about Omni Military Loans? The average person some time in their adult lives will come across a time where they will need to take out a loan. However, if you're in the military you aren't just the average person.
|
| home | site map |
| © 2006 |
