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Payday loans and bank overdrafts compared

We investigate the cost of short-term borrowing

Payday loan companies often claim that they compare favourably with bank overdrafts. We investigate the cost of borrowing £100 for a month.

The high advertised APRs on payday loans frequently grab the headlines, but how do they compare with an overdraft from your bank? Surprisingly, a payday loan can be cheaper than an unauthorised overdraft, but usually doesn’t come close to the value offered by an authorised overdraft.

Misleading APR comparisons?

Which? credit expert Martyn Saville commented: ‘For payday loan companies to claim that they’re cheaper than unauthorised overdrafts is, in most cases, true. But that’s only half the picture: payday loans and unauthorised overdrafts both offer poor value for money and should be avoided wherever possible.

‘Consumers should also be wary about payday loan providers’ claims about APRs. On its website, PaydayUK, for example, compares three- and five-year loans (both with an advertised APR of 19.9%) with a 30-day payday loan with an APR of 1,737%. It compares the actual interest paid under each option, concluding that the interest repaid on the longer-term loans is “much higher than a payday loan”.

‘We think this argument is misleading as an interest charge of £153 on a £500 loan over three years is clearly much better value than a £125 charge for just one month. If you’re looking for a loan, always think about the length of the loan as well as the amount repayable.’

Payday loans and overdrafts compared

The table below compares the cost of borrowing £100 over one month using payday loans and bank and building society overdrafts.

£100 for one month: how much will it cost?
Lender Cost
Payday loan companies [a]
Quick-payday.co.uk £20.00-£30.00
Quickquid.co.uk £20.00-£29.50
Paydaybank.co.uk £25.00 [b]
Paydaykong.com £25.00 [c]
Paydayloan.co.uk £25.00
Paydayuk.co.uk £25.00
Wonga.com £36.72 [c]
Unauthorised bank overdrafts
Co-operative Bank £21.24
Nationwide BS £21.50
First Direct £25.00
HSBC £26.50
Lloyds TSB £81.46
Barclays Bank £110.00
Santander £125.00
Halifax/Bank of Scotland £150.00 [d]
NatWest/Royal Bank of Scotland £186.00
Authorised bank overdrafts
First Direct £0
Co-operative Bank £1.35
Nationwide BS £1.61
Barclays Bank £1.64
NatWest/Royal Bank of Scotland £1.69
HSBC £1.69 [e]
Santander £5.00 [f]
Lloyds TSB £6.61 [g]
Halifax/Bank of Scotland £26.00 [d]

Table notes

  1. We reviewed the biggest online payday lenders by 12-week UK Google clickthrough rate for the search term ‘payday loan’. We have not included services advertised as aggregators. Swiftmoney.co.uk is not included in the table due to its lack of charges information and its inappropriate level of site security and personal detail required.
  2. 28-day loan
  3. 30-day loan
  4. After deducting the £5 that Halifax pays if the customer funds their account with at least £1,000 each month
  5. Assumes this is the first overdraft in the last six months. If not, fee is £26.69
  6. £0.50 per day, capped at £5 per month
  7. Includes £5 per month overdraft fee

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