Benefits of Payday Loans Versus Overdraft Fees

While some consumers are not familiar with using payday loans to cover occasional, short-term gaps in funds between paychecks, most consumers are familiar with overdrafts and the consequences that may follow. An overdraft may result in spiraling fees, an unstable budget and a negative mark on a credit score. There are options, like payday loans, to overdrafting an account. Here’s a brief exploration of how overdrafts occur and the available alternatives.

Overdrafting Defined

An overdraft occurs when more is charged to a credit or debit card than is available in the account. This can also happen when a check is written that exceeds the amount in the customer’s account. Without any kind of protection in place, overdrafting can lead to declined cards or bounced checks.  Overdrafting an account can also lead to high fees and penalties from both the business declining the purchase and the bank to which the check was returned.

Overdraft Protection

Most banks now offer overdraft protection service to most customers with a checking account. Customers with this service are charged a flat fee to cover the balance of an overdraft up to a certain amount. This effectively keeps checks from bouncing. The primary problem with this service—the same amount will be charged regardless of the amount of the overdraft. For example, if the bank charges a $35 overdraft protection fee per overdraft, the customer will be charged $35 even if the account is overdrawn by a few cents.

Non-Sufficient Funds (NSF)

If an account overdrafts and no protection is available, the bank may choose to not cover the amount of a debit or check. The bank will then charge the customer a non-sufficient funds (NSF) fee, or bounced-check fee. These are generally very high. In addition, the business that failed to receive payment will typically charge a returned check fee.  These charges can quickly get out of hand and leave account holders in much more debt.

Credit Damage

If an account is overdrawn repeatedly, a bank may report the situation to the major credit bureaus. This damages credit ratings, which can have long-term effects for the account holder’s financial options. A good credit rating is crucial to qualifying for credit and lending. Damaging a credit rating due to frequent overdrafts should be avoided if at all possible.

Overdraft protection is a convenient, but expensive way to avoid the other negative repercussions of an overdraft. However, other options are available to most consumers. The best way to avoid risking a large fee for a small overdraft is to practice responsible budgeting. Payday loans may also be an option to consider. The small, up-front fees and clear due dates make payday loans a viable alternative to overdraft protection charges. To learn more about financial options available to you, visit www.checkngo.com today.

Christy Belden
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