A Case for Short Term Loans

Ben pointed me to a great article in the Fort Worth Star-Telegram.  The article profiles a consumer that racked up $579 in bank overdraft fees on $205 in checks and debits.  Unfortunately, this isn’t an unusual case — millions of people pay overdraft “protection” charges each month.  It’s the banking industry’s “dirty not-so-little secret” — they make around $20 billion (yes, billion) every year in overdraft charges.

At $30 to $40 each, these fees are almost always more expensive than payday loans and other types of short term loans.  For example, if the person featured in the Star-Telegram article had taken out a payday loan to cover her overdrafts, the total fee would have been less than $50 instead of over $500.  If you do the math (and I have) U.S. consumers would save billions of dollars annually if every overdraft was replaced with a payday loan.

Short term lenders are criticized for their high interest rates, yet one of the primary reasons the short term loan industry exists is because it’s a cheaper option for cash-strapped consumers.

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