'˜Punishing' banks can be even more expensive than payday lenders

Borrowers needing as little as Â£100 could be charged up to Â£156 more by their bank than it would cost at a payday lender.

The consumer group is urging a crackdown on the “punitive” charges that can be incurred when someone goes into an unauthorised overdraft. Which? compared the cost of borrowing £100 for 30 days using an unauthorised overdraft.

It found some banks charge more than seven times the maximum £24 charge on a payday loan.

Customers who need £100 could end up paying as much as £180 in fees at their bank if they borrowed the money across two monthly billing periods, according to the findings.

Which? found that NatWest could charge £180 to borrow for 30 days over two billing periods, a difference of £156 compared with a payday loan costing £24. Customers using Lloyds or Santander could be charged £160 to borrow across two billing periods, £136 more than a £24 payday loan, Which? found.

NatWest said: “We encourage all of our customers to contact us if they are going to enter unarranged overdraft, regardless of the amount or the length of time.

“We offer a number of alternative solutions, such as putting an arranged overdraft in place, where the costs are considerably less.

“Customers are not charged if their unarranged borrowing is £10 or less, and our act now alert service alerts the customer of upcoming unarranged borrowing to allow them time to transfer money to avoid unarranged overdraft fees.”

Payday loan charges were capped in 2015.