Banks charge more for overdraft than payday loans

Borrowers needing as little as £100 could be charged up to £156 more by their bank than a payday lender.

Consumer advocacy group Which? compared the cost of borrowing £100 for 30 days using an unauthorised bank overdraft. It found a number of banks charged over seven times the maximum £24 charge on a payday loan.

The findings revealed that customers who needed £100 could end up paying as much as £180 in fees at their bank if they borrowed the money across two monthly billing periods.

According to the study NatWest could charge £180 to borrow for 30 days over two billing periods - a difference of £156 compared with a payday loan costing £24.

Customers who used Lloyds or Santander could be charged £160 to borrow across two billing periods, £136, Which? found.

NatWest said in a statement, "We encourage all of our customers to contact us if they are going to enter unarranged overdraft, regardless of the amount or the length of time.

"We offer a number of alternative solutions, such as putting an arranged overdraft in place, where the costs are considerably less.

"Customers are not charged if their unarranged borrowing is £10 or less, and our act now alert service alerts the customer of upcoming unarranged borrowing to allow them time to transfer money to avoid unarranged overdraft fees."

Lloyds said, ''Unplanned overdrafts are designed for occasional spend rather than long-term borrowing. Customers can use our free mobile banking apps as well as voluntary text alerts, and all our overdraft products include an interest and fee-free buffer.''

Santander said, ''We stress to customers that if they feel they may need to go into an unarranged position they contact us to discuss their situation. We have tools to help customers manage their money including text alerts.''