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Calculating Late Fees Into An APR Percentage

Did you know that In 2009 the banking industry made roughly 38 billion dollars on Overdraft Fees! Sorry to say, but this is a regular position that most of us have had the terrible luck to come upon at one time or another.  At times it seems that no matter how hard you try, banks appear to find a means to re-arrange your payments in a way that causes a string of expensive overdraft fees.

Imagine you have $500 in your checking account and do 5 separate debit charges at $20 a piece. Later in the day you write a $450 check to pay your rent. Whoa! You just overdrew your account. Some banks will not just charge you once for overdrawing your account but they will put the rent check through first and then the 5 debit charges resulting in 3 separate overdraft fees.

Your bank will state that these charges are just “pending”€ and just happened to post in that order.  Remember the “€terrible luck”€ I spoke of earlier?

Since an overdraft charge is not a loan, a bank is not required to reveal the APR for these charges and some may refuse to tell you what the APR on your last NSF was altogether.  Not to worry, it’s not hard to figure out.

Banks more often than not fight against the Payday Loan industry since we present a substitute to numerous NSF fees and therefore we are a threat to that $38 billion a year.  They say a payday loan’s APR is too high and should be banned.  Well as I’m about to show you, the average overdraft come out at a much, much higher APR.

Let’s say you overdraft your account by $20 and are charged a fee of $30″€¦

(($30/$20) * (365 days/14 days))*100 = APR% of  3,911%

Hold the show!  That’s not a little higher than a payday loan, that’s much higher than a payday loan!

Now let’s visualize getting smacked with 4 NSF’s ($30 apiece) and let’s say that you only overdrew your account by $30″€¦

(($120/$30) * (365 days/14 days))*100 = APR of 10,429%!

WHAT?!? Over 10,000%? No wonder the bank won’t tell me what an overdraft APR is.

Perhaps we should all challenge the banking industry the next time they cry that the rates payday loan companies charge are too much.