A couple of months back we had written an article on banks offering payday loans. We had also written the big banks are not interested in offering payday loans to their customers. This article is written to tell our readers that whether your bank offers payday loans or not, it is always better to get a loan from some other place but your bank. Lets discuss why.
Yes it is true that payday loans will never form the main product of major banks, but it is also true that they don’t want to miss an opportunity to make money in this billion dollar business. As we had written earlier, some banks have started offering similar loans to their customers though they don’t call it payday loans but direct deposit advances. This may be for legal reasons. Lets discuss in details.
Note: Before reading further please understand that if you really need a payday loan then its better to search for a lender online, or walk to a shop. It is a bad idea to get a small loan from a bank. They are neither flexible nor easy to deal with. Banks have your account in their hands, and if need be will do anything to get their money back. And if God forbid they over-withdraw, you will have real tough time to get the extra withdrawal back. Since they are more powerful and have lots of cash, its better you take a loan from a payday lender.
Three major banks in the USA have started offering small loans to their clients. To be approved for a loan you must have an account in their bank. If you do not have an account, you loan application will get rejected.
These three banks are: U.S. Bank, Wells Fargo, and Fifth Third Bank. These banks offer a loan at 120 percent APR. You need to have a bank account with them else you cannot apply. The Max amount that you can borrow is $500 or half of the deposit (pay) you get in your account every month – whichever is less.
Do not get confused by the low APR. The real loan is $10 per $100 borrowed and the APR is calculated on one statement cycle term which is one year. 10*12 = 120%. However the loan is packaged that way to sell. If you calculate 2-week APR it will come to 240%.
To be eligible to get this loan, your pay should fall in the same bank, else as written above your loan will be rejected. Can you smell the reason? Yes you guessed it right, they will take back their money + the fee if any, as soon as your pay falls in the account. You will not get a second chance to defer the loan payment even if you are willing to pay the rollover fee.
You know what, they will take their money back even if the deposit is not your salary. Suppose you deposit a check from a friend after taking the loan, as soon as the check is cleared, the bank will take their cash out. Of course you will get a reduction in fee because of the advance payment, but the point is you will not get a chance to lay hands on the recent deposit even if its not your pay. That was actually the terms you signed with the bank and there is not a thing you can do anything about it.
Here is more. Lets suppose for some reason your pay did not fall on the stipulated date. The bank will wait for a maximum of 35 days from the day the loan was approved. Once the 35 day deadline is passed – the bank will take their money out and leave your account in an overdraft situation (negative cash). Now you will need to pay the overdraft fee as well, on top of the direct deposit advance.
Walls Fargo and Fifth Third bank may or may not impose the overdraft fees (meaning the cash is withdrawn and the account is in negative state but no fees is levied), but the customer is warned that any further transactions will result in a penalty.
US bank does add overdraft fee. See how much they charge if their customer who has taken a direct deposit advance and unable to pay within 35 days: $10 for the initial advance, $37.50 Max overdraft fee, and $8 everyday after 4 days until the loan is paid in full. If this goes on for 7 days, the borrower would pay $71.50 for a $100 loan in just 42 days.
Lets not get into the every detail of the loan as you will find it in your terms and conditions when you will apply. The point to write this article was to warn our readers of the pitfalls of taking a short-term loan from your bank if they allow.
You are much better off taking a small loan from a payday lender as they have flexible terms and they are helpful if you default. Banks on the other hand have a very strong legal wing and will do anything to get their money back even if it is a small amount.
Unfortunately these 3 big banks have a large customer base and we are sure most of their customers are not very financially literate and they do apply to get a loan from them.
Payday loans should be avoided if they can be, but if you need some cash for emergency its better to look for a payday lender rather than go to your bank.
Thank you for visiting our website. Hope we helped you get a loan.