Consumers who unexpectedly run out of funds are being charged more for short-term borrowing by some of Britain's biggest banks than payday loan firms.
Someone who needed £175 to tide them over for a week could be charged less than £20 to borrow from a payday loan firm.
But they could end up paying more than twice the amount they borrowed if they use an unauthorized overdraft with Lloyds TSB.
The number of people using payday lenders has quadrupled since the credit crunch began. The loans are designed for people who need to borrow cash for a few days before they are paid.
But experts warn payday loan providers should be approached with caution as the annual percentage rate for borrowing can be more than 2,689%.
They also have unexpected charges if borrowers default on repayments.
Payday loans are not suitable for those looking for longer-term credit or who are unable to pay off debts within a few days.
Borrowing £175 for eight days costs £19.74 with payday loan provider Wonga, but would cost £175.74 with Lloyds TSB, which charges a monthly fee of £5 and a daily fee of up to £25 for going into an unauthorsied overdraft.
A spokesman for Lloyds says: ' Disarranged overdrafts allow customers to make payments immediately from their account without having to enter into a separate new lending arrangement with another third party.
Source: Thisismoney.co.uk
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