46,450,869%: That's what some banks will charge if you go overdrawn this Christmas

Shoppers who overspend this Christmas risk being hammered with eyewatering bank charges.



As tempting as it might be to hand over your debit card for presents and festive food to make Christmas as special as possible for your family and friends, the real cost could be shocking.



Interest and charges levied on unauthorised overdrafts can be equivalent to an APR of more than 46 million per cent, a Money Mail investigation reveals.

These sky-high fees are forcing many borrowers into the clutches of controversial payday loan firms, which give out short-term loans to tide over borrowers from one pay cheque to the next.



Hard hit: Interest and charges levied on unauthorised overdrafts can be equivalent to an APR of more than 46 million per cent

Millions exceed their overdraft limit or borrow on a credit card in the run-up to Christmas. To test the cost of borrowing, we examined the case of a one-off payment of £200 that would send someone into an unauthorised overdraft for ten days.

We compared High Street bank charges for this with the cost of getting £200 emergency money from a payday loan company for the same time. We used the annual percentage rate (APR) calculation imposed on payday loan companies by the Office of Fair Trading.

With payday loans, borrowers pay a one-off fee, often around £25 for every £100 they borrow, and agree to repay the cash when they are paid. The loan can be in your bank account within 15 minutes of making an application.



Our investigation found that customers of Lloyds, which is 41 per cent owned by the taxpayer, would face charges of £85.95 over ten days. This is made up of eight daily charges of £10, a £5 ‘usage fee’ and 95p interest. In total, these fees are equivalent to an APR of 46,450,869. An APR shows the full cost of borrowing if the pattern continued for a full year.

In practice, Lloyds says that noone would pay this annually because charges are capped at the £85 level every month. At Santander, a £200 unauthorised overdraft could cost you £60.68. This would give an APR of 1,586,122 . Cheapest is Barclays, which charges £8 for a £ 200 unauthorised overdraft for ten days.



By comparison, loan companies Payday Express, Payday Financial and Payday UK charge £50 — an APR of 344,521.









Wonga, the most high-profile payday loan firm, asks £25.77 — an APR of 3,099. This breaks down into £8 for every £100 borrowed plus a transmission fee of £5.50 and daily interest of 0.98 per cent. If you miss a repayment, it charges £25; interest is frozen after six days. It claims fewer than one in ten borrowers miss their repayment.



Banks are not obliged to express their fees and charges as an APR, but payday loan companies must. But these firms are shrouded in mystery. They advertise on the internet , obscure TV channels and comparison websites such as Moneysupermarket.

Wonga sponsors Premier League football team Blackpool and says it wants to clean up the image of these companies. Some charge daily interest and a fee for every £100 you borrow. Others just charge a one-off fee. They are not regulated by the Financial Services Authority and so borrowers have no protection from the ombudsman service.

Particularly unclear are the penalties for missed payments. Charges can quickly run out of control. In the worst cases, if a debt is not repaid then it may be treated as a new loan, charging you the same fee you originally paid over and over again.



For example, if you were charged £50 for ten days, but did not then pay it back, then every further ten days you would be charged another £50 — until you repaid the debt. After six months, you would owe more than £1,000.



A loan helps with the bills

The banks argue that it is unfair to compare payday loans firms and unauthorised overdrafts. But an investigation by consumer champions Consumer Focus found 1.2 million people a year are using loan firms, many because they fear bank charges.



Using a payday loan ensures their bank account stays in the black. The latest available figures, from 2008, show £7.5 billion was borrowed on short-term loans, pawnbrokers and rent-to-buy agreements.

A spokesman for Consumer Focus says: ‘These products are controversial, but we don’t want to see them banned. We need banks to provide alternative short- term credit for cashstrapped consumers.’

A spokesman for Santander says: ‘An overdraft can be an effective way of funding a short-term need for extra money, and is normally cheaper if you contact your bank and arrange an overdraft.’

Mike Regnier, current accounts director for Lloyds TSB, says: ‘We offer our customers a number of services to help them manage their money effectively and prevent them from accruing fees and charges on their account, such as free text alerts that warn customers when they are about to go over their limit.