Following an investigation by the Daily Mail, the unauthorised overdraft charges that are slapped on the general public for going a little over their account's limit are in the region of 46 million per cent! Payday loans on the other hand have an annual percent rate of around 1-2000%, which still sounds very high but when you can pay an extra £25 on a £100 short term loan, it's not as dismal as you might expect.
Payday loans have grown in popularity massively in the past five years and with employee salaries only being paid on weekdays it can cause cash flow problems. This is where a short loan can be ideal to bridge the gap while waiting to get paid. With bank overdraft charges being astronomically high, for example on an overdraft of £200 Lloyds TSB charges £85.95 over a 10 day period, compared to much less from an instant payday loans company. Also, there is no blot on your credit rating for using a payday loan as you haven't defaulted on it, whereas with an unauthorised overdraft it will be recorded, in most circumstances.
These facts mentioned come around because the Office of Fair Trading requires payday loans companies to explain the APR rates and advertise them, whereas banking charges for overdraft charges are not. This is why most people think that payday loans charge higher than banks, but in actual fact, it's a lot lower but only more visible because the companies need to state the figures. It seems odd that banks haven't added a ultra short-term loan to their list of services, but it's because charging higher overdraft fees is far more profitable for them.
If you're strapped for cash and need a way to pay unexpected bills, for example a new set of car tyres usually puts at least a £200 dent in the wallet, then a payday loan company comes in very handy. Kids can spring a school trip on you at any time and if you have a leasehold house, there might be additional charges for the ground rent or maintenance that land on your doorstep without giving you much time to pay. Even if you budget cleverly and set aside cash for those eventualities, there will always be something that crops up. You might not have many assets to sell or be able to work a part-time job, because mainly these take a long time to see the money you need, so being able to call upon cash in an instant is handy.
With banks seemingly wanting to slap charges on your account left, right and centre, and being strict on who they lend money to with a normal loan, payday loans might be your last and only option. It's important to ensure you fully pay-off the loan so there are no added charges or you need to re-borrow to be able to see you through to the next month or it will be a vicious circle of borrowing and repaying for a long time.