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. A fee that 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. That�s the other kind of lending that costs 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. See http://www.payday-cashadvances.net for related articles.
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Bank | Overdrafts | Loan | Paychecks | Personal Debt
Sunday, December 16, 2007
Why Do People Borrow?
"Do you often wonder why people borrow? Have you always done everything in your power to keep "borrowing" and "debt" at an arm's length? Do you for some reason feel there is still an element of stigma attached to being in debt?
Well, times have changed. Borrowing money is no longer something people are embarrassed about or consider only as a last resort. It has become a way of life for millions of people around the world, enabling them to survive times of crises if not live out their dreams. In the U.S., thousands borrow money every single day. You might not think of it that way, but you are actually borrowing money each time you use your credit card!
If they couldn't borrow money easily, most average Americans would find it very hard to own a home or a car. After all, how many of us have thousands stashed away in our bank accounts at any given point of time? When you have several day-to-day financial obligations to meet - putting food on the table, sending children to school, paying the rent and medical bills - borrowing is often the only way to raise money for big transactions, like buying a house or funding a business.
Being in debt is a reality for most people today and it is a perfectly acceptable situation if are on top of your finances. As long as you are managing your money in a way that ensures you regularly pay back what you have borrowed, there is nothing to worry about. Debt becomes a problem only when you start to live beyond your means or if you borrow without thinking of how to repay it.
Because it has become an integral part of life, borrowing is easier today than it has ever been. There are thousands of banks and other financial institutions that lend money. These traditional lenders however favor borrowers who have good credit ratings. But even people with bad credit now have avenues for borrowing. There are hundreds of creditors today who specialize in giving loans to people with repayment problems in their past. Many even extend loans without collateral, which makes it easy for people who are not homeowners to borrow.
You can borrow money for whatever you wish. A mortgage allows you to buy a home. A refinance loan enables replacing the original mortgage with a loan at lower interest. A personal loan can be taken if you need cash to tide over an emergency or if you want to make purchases, fund a vacation, get your child a good higher education, carry out home repairs or for any other purpose. A home equity loan is money borrowed against the equity you own in your home. The money could be used for anything. Then there are auto loans that can help you own your dream car.
Borrowing can be a positive thing. It can serve as a means to an end. If you are prudent with your finances, taking a loan could work out well for you. Don't get swayed by alarmist projections in the media that Americans have lost control of their finances and the nation is doomed to live in debt. According to the Federal Reserve, vast majority of Americans either owe nothing to creditors or have minor debts that they can pay off comfortably. "
About the Author
I write articles for www.badcreditpersonalloan.com which offers you help with personal loans, business loans, mortgage loans, refinance loans, payday loans, computer loans, debt consolidation loans, auto loans and more.
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Borrow | Money | Debt | Credit Card | Loan| Bad Credit| Business Loans
Well, times have changed. Borrowing money is no longer something people are embarrassed about or consider only as a last resort. It has become a way of life for millions of people around the world, enabling them to survive times of crises if not live out their dreams. In the U.S., thousands borrow money every single day. You might not think of it that way, but you are actually borrowing money each time you use your credit card!
If they couldn't borrow money easily, most average Americans would find it very hard to own a home or a car. After all, how many of us have thousands stashed away in our bank accounts at any given point of time? When you have several day-to-day financial obligations to meet - putting food on the table, sending children to school, paying the rent and medical bills - borrowing is often the only way to raise money for big transactions, like buying a house or funding a business.
Being in debt is a reality for most people today and it is a perfectly acceptable situation if are on top of your finances. As long as you are managing your money in a way that ensures you regularly pay back what you have borrowed, there is nothing to worry about. Debt becomes a problem only when you start to live beyond your means or if you borrow without thinking of how to repay it.
Because it has become an integral part of life, borrowing is easier today than it has ever been. There are thousands of banks and other financial institutions that lend money. These traditional lenders however favor borrowers who have good credit ratings. But even people with bad credit now have avenues for borrowing. There are hundreds of creditors today who specialize in giving loans to people with repayment problems in their past. Many even extend loans without collateral, which makes it easy for people who are not homeowners to borrow.
You can borrow money for whatever you wish. A mortgage allows you to buy a home. A refinance loan enables replacing the original mortgage with a loan at lower interest. A personal loan can be taken if you need cash to tide over an emergency or if you want to make purchases, fund a vacation, get your child a good higher education, carry out home repairs or for any other purpose. A home equity loan is money borrowed against the equity you own in your home. The money could be used for anything. Then there are auto loans that can help you own your dream car.
Borrowing can be a positive thing. It can serve as a means to an end. If you are prudent with your finances, taking a loan could work out well for you. Don't get swayed by alarmist projections in the media that Americans have lost control of their finances and the nation is doomed to live in debt. According to the Federal Reserve, vast majority of Americans either owe nothing to creditors or have minor debts that they can pay off comfortably. "
About the Author
I write articles for www.badcreditpersonalloan.com which offers you help with personal loans, business loans, mortgage loans, refinance loans, payday loans, computer loans, debt consolidation loans, auto loans and more.
Technorati tags :
Borrow | Money | Debt | Credit Card | Loan| Bad Credit| Business Loans
Why Payday Loans Can Damage Your Financial Health
If you are thinking about using a Payday Loan to provide for those unexpected expenses there are several things you need to consider.
The reasons to avoid a Payday Loan vary, but probably the most obvious reason is the dangerous interest rates that this type of borrowing charges.
The Payday Loan companies claim that the level of repayment is more important to their clients than the actual interest rate, and this is a fair point but these high interest rates could mean that you could end up in worse financial shape than before.
It is very important to consider all your options and if this is the only form of borrowing you can get do research several companies to get the best interest rate or if at all possible to look for another way to get the money that you need.
The next most important reason you need to avoid Payday Loans is the high fees that are charged when you miss a payment! If a payment is missed, you will then have to pay back even more money to the cash advance company. By missing one payment you can find that the amount you owe has increased by up to 50%, and this will put you into an even worse financial fix, that you may not be able to overcome.
The payment terms that you have to accept may also be hard to live with. It will probably make more sense for you to consider using your credit card if you get into a financial mess. You will pay less in the long run if you borrow from your credit card than you will if you get a Payday Loan. By making a wise choice now you may be able to keep yourself out of a financial hole that may be impossible to get out of once you fall in.
If you need a large amount of money, then you must try to get a loan from a regular loan company first. The repayment terms will be a lot more affordable and this will allow you to pay them off much sooner. This means that you will be able to keep more of your money in your own pocket, which is what everyone wants to do.
If you can possibly avoid using a Payday Loan company then do so, if you must use this source of credit proceed with caution and try to borrow only the very minimum you can manage.
About the author:
For further vital information news and views about Payday Loans pay a visit to www.paydayloancenter.info
You may reproduce this article provided you maintain an active link back to www.paydayloancenter.info
Technorati tags :
Payday Loan | Financial | Money | Credit Card
The reasons to avoid a Payday Loan vary, but probably the most obvious reason is the dangerous interest rates that this type of borrowing charges.
The Payday Loan companies claim that the level of repayment is more important to their clients than the actual interest rate, and this is a fair point but these high interest rates could mean that you could end up in worse financial shape than before.
It is very important to consider all your options and if this is the only form of borrowing you can get do research several companies to get the best interest rate or if at all possible to look for another way to get the money that you need.
The next most important reason you need to avoid Payday Loans is the high fees that are charged when you miss a payment! If a payment is missed, you will then have to pay back even more money to the cash advance company. By missing one payment you can find that the amount you owe has increased by up to 50%, and this will put you into an even worse financial fix, that you may not be able to overcome.
The payment terms that you have to accept may also be hard to live with. It will probably make more sense for you to consider using your credit card if you get into a financial mess. You will pay less in the long run if you borrow from your credit card than you will if you get a Payday Loan. By making a wise choice now you may be able to keep yourself out of a financial hole that may be impossible to get out of once you fall in.
If you need a large amount of money, then you must try to get a loan from a regular loan company first. The repayment terms will be a lot more affordable and this will allow you to pay them off much sooner. This means that you will be able to keep more of your money in your own pocket, which is what everyone wants to do.
If you can possibly avoid using a Payday Loan company then do so, if you must use this source of credit proceed with caution and try to borrow only the very minimum you can manage.
About the author:
For further vital information news and views about Payday Loans pay a visit to www.paydayloancenter.info
You may reproduce this article provided you maintain an active link back to www.paydayloancenter.info
Technorati tags :
Payday Loan | Financial | Money | Credit Card
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