Which is least expensive: a payday loan, a bank overdraft fee, or a late fee?
If you answered payday loan, you are correct.
A recent FDIC study on bank overdrafts found that the average amount overdrafted by customers is $60, and that the average overdraft fee charged to those customers is $27, or 45%.
So, what does the average $60 payday loan cost you? $6, or 10%, according to the same FDIC study.
Another recent study published by the Community Financial Services Association (CFSA.com) found that the average cost to customers with a delinquent utility account of $100 is charged $46, or 46%, in late and reconnection fees. The average $100 payday loan costs consumers $15, or 15% and is one-third the cost of late and reconnection fees.
The same CFSA study also found an average 37% late fee on a $100 credit card balance, and a 54% fee for a $100 check that was bounced.
So what does all this mean for you, the consumer? It means that if your options are a) bounce a check, b) miss a bill payment, or c) take out a payday loan, a payday loan is the least expensive option.
However, this is only true if you use the payday loan responsibly as a short-term financial solution, and pay it back on time. If you miss your payment or extend the length of your loan because you can't pay, you are only harming yourself and your long-term financial situation due to the debt you will accumulate.
The Experts' numbers don't lie: responsible payday borrowing will save you money.
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