Interest rate rocks and hard places...

What is the most expensive way to borrow money?  An unauthorised overdraft is quite hard to beat, and dearer than a payday loan.

But what kind of borrowing can damage your credit rating, even if you make the repayments correctly? A payday loan may well give you a black mark.  The phrase “rock and a hard place” is difficult to avoid.

Payday loans with interest rates of more than £4,000 get a deserved amount of publicity – because these loans are being marketed aggressively to people who are often using them to fund everyday living.  But rates for unauthorised overdrafts attract punitive interest rates and fees.

Consumer advice website watchmywallet.co.uk looked at how much it would cost you to go overdrawn by £11 for two days without permission on your current account.  And to make the point, they also looked at how much the same size loan (albeit an unlikely one) would cost from a payday loan company for the same period.

This is of course an unrealistic comparison on several levels – but there is sufficient anecdotal evidence that the banks do impose these levels of fees and interest rates for very small amounts of unauthorised overdrafts to make it an interesting exercise.

For more on this story, go to http://www.guardian.co.uk/money/2012/nov/17/payday-loans-credit-rating