If you are in the market for a payday loan, you may not know it, but you can get a payday loan from your bank. Yes, banks such as Wells Fargo, US Bank, Regions Bank, and Firth Third Bank offer payday loans.
You might not know that these large, mainstream lending institutions offer payday loans, but they do. The catch is they don’t refer to them as payday loans. They give these loans names like Checking Account Advance and Ready Advance. Regardless of the name, they are still similar to payday loans. The interest rates that you will pay for these loans might be somewhat less than you would find at your typical payday loan lender, but they are still considerably higher than they would be at “traditional” payday loan lenders. So you can think of these as payday loan alternative lenders.
The rates that typical payday loan lenders charge is usually around $20 for every $100 that is borrowed. So for example, if you borrow $1000 from a typical payday loan lender, you might have to pay $200 in interest and fee for the privilege. Wells Fargo’s payday loan program is called Direct Deposit Advance. They charge much less that other payday loan lenders. Wells Fargo charges $7.50 per $100 borrowed. So using the same example, you would “only” pay $75 for a $1000 loan instead of $200. That is a considerable difference, but we did put the work only in quotes for a reason. That $75 fee is still quite considerable. It may appear to only be a 7.5% interest rate, but since these loans are usually due to be repaid in about a month, the interest rate can be closer to 1000% annualized!
Wells Fargo is quick to point out that these loans should not be undertaken unless of a dire emergency. This is the same message that you get from other traditional lenders as well as from payday loan lenders.
Payday Loan Advantage From Banks
There is one major difference in getting your signature loan (another name for a payday loan) from a well-known bank as opposed to getting one from a typical payday loan lender. That difference has to do with credit reporting. As you probably know, your credit score (also known as your FICO score) is determined based upon how well or poorly you have paid your debts in the past. By repaying a payday loan from a traditional payday loan lender, your credit score will not improve. That’s because those lenders do not report their results to the credit reporting agencies. Traditional banks, on the other hand, will report your payments to the credit agencies. So if you pay back your cash advance in a timely manner, it will improve your credit score. For those people who are looking for loans for bad credit, this can be a real advantage. Once you repay the loan through the bank, your credit score might improve, perhaps so much so that you will not need to look for loans for people with bad credit scores in the future.
Consumer Groups Disapprove
Consumer advocates say these signature loans that you obtain from banks are just as bad as payday loans. The reasoning behind this has to do with the fees that are charged. As mentioned above, the interest and fees on such loans is considerable. However, the fees charged by banks is lower. The consumer groups feel that the fees charged are unreasonable and that borrowers often can’t afford to pay back their loans by the time they mature, which is typically on the date of their next paycheck. They will then need to roll their loans forward into new loans creating a never-ending spiral of high interest, bad credit loans.A quote from a consumer activist indicates:
“Payday loans erode the assets of bank customers and, rather than promote savings, make checking accounts unsafe for many customers,” wrote a consortium of 250 consumer groups, community and religious organizations and law centers in a letter urging federal regulators to halt payday lending by banks. “They lead to uncollected debt, bank account closures, and greater numbers of unbanked Americans.”
Lenders (both banks and payday loan lenders) disagree. They feel that these loans are emergency loans for people who have no place else to turn to for a quick cash infusion.
If you are looking for a signature loan, you don’t need to go to one of shops on the street corner that offer payday loans. You can get a payday loan alternative at your bank.
- Charge you late fees
- Send your account to a collection agency
- Report your information to a consumer reporting agency, which may negatively affect your credit score
- Offer to renew, extend or refinance your loan, which may cause you to incur additional fees, charges and interest