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Can you get a payday loan at your bank?

[Sep 23, 2011.]

 

The Las Vegas Review-Journal recently reported that Wells Fargo allows its customers to borrow money for a short-term emergency with a "direct deposit loan." In addition, credit unions are allowed to make payday advance loans under the guidelines of the National Credit Union Administration (NCUA).


There are some differences between how a payday loan works from a typical check-cashing business and a bank or credit union. Generally, the banks and credit unions are likely to charge a little bit less in interest to their customers for short-term payday loans.


Payday loan restrictions


In 16 states and the District of Columbia, legislation is in place that limits the amount of interest that can be charged on a payday loan to 36 percent per year. In addition, the Department of Defense limits the interest that can be charged on payday advance loans for active-duty military personnel to 36 percent.


Payday loans typically must be repaid within 30 days, so even though an annual interest rate of as much as nearly 400 percent is charged by some payday lenders, few customers actually pay that much in interest.


Direct deposit loans


According to the Review-Journal, Wells Fargo limits its direct deposit loans to existing customers who have a checking account with a recurring direct deposit paycheck or a tax refund that is directly deposited into the account. The bank charges $7.50 per $100 on these loans, which is the equivalent of 261 percent on an annual basis. Wells Fargo limits these loans to a maximum of $500 or no more than half the direct deposit amount. The amount borrowed and the fee are automatically deducted from the customer's account when the next deposit arrives. Customers can only borrow payday loans for six consecutive months and then must wait at least one month for requesting another direct deposit advance.


Credit unions, according to the NCUA, are limited to an annual interest rate of 28 percent on payday advance loans. Credit union members must be given one month to repay the loans and are restricted to three payday loans within a six-month period.


Too many payday loans


In addition to high interest rates, payday loans can be dangerous to consumers because the loans often end up creating a cycle of debt. If you have an emergency and need cash one month, this means that you must have the funds available in your next paycheck to repay the loan. If you don't have enough to cover the advance and pay your regular bills, you can find yourself needing another payday loan.


Putting yourself on a strict spending diet or finding a way to bring in extra cash can get you back on track. Once you repay your payday advance loans, make sure you start setting aside as much as you can, even as little as $10 or $20 per paycheck, to begin building an emergency stash of cash.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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