If you don’t want to borrow thousands of pounds, overdrafts and payday loans offer a service that is otherwise difficult to find. Overdrafts can often seem more desirable than payday loans because the interest rates are much lower, or even interest-free, as long as you repay the amount owing in full each month, and they seem to have a much better reputation across the board. However, unarranged overdrafts present a different story.

A recent inquest by Which?, a charity focused on promoting consumer rights, has shown that unarranged overdrafts can cost far more than payday loans.

High Street banks charging extortionate fees

The investigation involved 16 high street banks, 13 of which were seen to charge ‘extortionate fees’ (Gareth Shaw, Which? money expert), with some charging over 7 times that of a payday loan. A loan of £100 from a payday loan company for 30 days will cost a consumer no more than £24 because of the regulations imposed in 2014 by the Financial Conduct Authority (FCA).

Woman looking surprised However, an unarranged overdraft for the same amount and length of time could cost up to £179! This figure is specific to Santander who have now pledged to remove all unarranged overdraft fees for certain accounts by July, but they are not the only mainstream bank charging excessive fees for unarranged overdraft usage. TSB charge £160, at HSBC an unarranged overdraft can cost £150, and Natwest comes in at £144. Crazy and unexpected prices from large high street banks.

Lack of regulation for overdrafts

Because of these scarily high figures, there is a huge call for overdraft reform amongst banks since the payday loan industry experienced a massive regulation shift. Consumers are now better protected from unfair payday loan charges; however, they can still face overdraft charges which only antagonises the situation for the customer. Further to this, it would appear that those who frequently use an unarranged overdraft are the least likely to be able to afford these penalty fares that come with it, and some argue these charges are trapping people into cycles of long-term debt, especially as few regulations regarding the lending of such overdrafts seem to be in place.

Could we lose unarranged overdrafts altogether?

Most banks have pledged to change their unarranged overdraft fees to make them more affordable (and more realistic), but it is not yet clear how drastic these changes will be and when they will take place. The Financial Conduct Authority believes changes may be necessary in how unarranged overdrafts are provided and perhaps even if they should be provided at all.

Payday lenders regulated by the FCA

In 2014, the FCA introduced and implemented new regulations on high cost short term credit (HCSTC) lenders to combat the excessive and unfair interest rates and additional charges on payday loans. The regulations allowed a better control over the industry and both lenders and consumers have benefited from them, so there is hope that similar regulations could help with unarranged overdraft fees.

The quick and easy service you need

At, we are an FCA authorised and regulated direct lender, which means we are a responsible lender with our customers’ interests at heart. We aim to offer the best service to our customers with a quick and easy application form and fast loan transfer times, so if approved, you will often receive your loan within minutes. If you are thinking about applying for a loan, make sure you consider whether you can afford your repayments at the time they’re due. We offer payday loans and instalments loans, so you can choose which best suits your financial circumstances and makes it easiest for you to repay!