We have written several times about how expensive overdraft fees can be… and how they can make payday loans look inexpensive.
Here's another look at overdraft fees. It's from Mark A. Fusaro, an economist at East Carolina University. Here's what he found:
Frequent overdrafters pay up to $3,000 in fees per year. The median implicit interest rate is calculated to be 4,547 percent.
"A person who has a $3 overdraft that is outstanding for one day pays an implicit interest rate of 260,245 percent," Fusaro wrote.
Obviously, an interest rate of 260,245 is pretty outrageous. But we provide this quote from Mr. Fusaro not to show the high percentage rate, but to remind you that using APRs to compare one kind of loan to another is not the way to go. You can't compare an overdraft APR to a payday loan APR. You should use an overdraft APR to compare the cost of an overdraft to an overdraft. You should use a payday loan APR to compare the cost of one payday loan to another.
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