A recent study by economic research group Moebs confirms what millions of underbanked consumers have always known: Payday loans are less expensive than bounced checks and overdraft fees. Don’t believe it? Let’s look at the math:
The average bank overdraft fee is $28 per transaction, with an average overdraft transaction size of less than $40. A small payday loan of $100 (enough to cover two average overdraft transactions) costs less than $20. Consumers that use overdraft protection – whether intentionally or unintentionally — tend use it frequently. In fact, 20 million checking account customers in the U.S. pay about $1500 or more in overdraft fees per year. It’s an eye-opening statistic. If these customers used payday loans instead of overdraft protection, they could reduce the fees they pay by more than 50%.
Payday loans are almost always a better option for consumers than overdraft protection. But that’s not enough. We think emergency cash lenders have a responsibility to make their product more convenient and less costly. That’s where we come in. Think Finance is creating better options for the people whose needs are not being met by banks and payday lenders. Here are a few examples. And we’re just getting started.