What are the Advantages and disadvantages of an overdraft?

Answer 1

An overdraft creates advantages and disadvantages to both the consumer and lender. An overdraft creates a defacto micro-line-of-credit allowing the consumer security in transaction approval. The disadvantage here is that possible exorbitant overdraft charges related amount to an extreme form of interest, or usury as alleged by its critics. Another disadvantage and injury to overdrafts upon the consumer is that lenders can charges upwards of 40$+ (as of July 2014) per transaction resulting in potentially hundreds of dollars in a single day alone, while the customer is unaware of a possible negative balance. These overdraft fees can be financially devastating to the indigent and those of limited means. Despite the profitability advantage to the lenders, which is worth billions per year to the American banking industry, overdrafts remain a banking liability by creating debt risk hedged on repayment.