Payday loan alternatives at local banks

[Dec 13, 2011.]

 

If you have relied on the occasional payday loan to handle a cash crunch, you are already aware of the danger of being unable to repay the loan. Short term payday loans can save a family from an emergency if they need to pay a utility bill, purchase a child's medicine or repair a car in order to get to work. On the other hand, these loans dip into the cash you have available to pay your regular bills and can result in an ongoing financial crisis.

Payday loans and banks

A recent article in The Mercury News compared direct deposit advance loans from banks with typical short term payday loans offered by payday lenders. According to The Mercury News, Regions Bank, Wells Fargo, U.S. Bank, Guaranty Bank and Fifth Third Bank all offer loans that are similar to payday loans. According to the paper, "In California, payday lenders charge a 460 percent annual interest rate for a two-week cash advance on a borrower's pay or benefit check. The terms at major commercial banks are only slightly better – an average of 365 percent for a 10-day cash advance."

Payday loans are illegal in 17 states, but banks can offer their direct deposit advance loans in many of those states because they are subject to national bank standards instead of state laws.

To compare payday loans with direct advance loans, you should make sure you check the APR (Annual Percentage Rate) of each loan as well as the other terms of the loan. According to The Mercury News, banks typically charge $10 per $100 borrowed and set the maximum amount for borrowing at $500. Payday lenders often charge $15 per $100, but in some states they are limited to a maximum loan of $300.

For consumers with credit problems, a payday loan can be one of the few options to handle a financial emergency. Banks do not check the credit of the borrowers, relying instead on the availability of a direct deposit such as a paycheck or a Social Security check. While it can be a relief not to depend on meeting credit qualifications, the bank also has first access to your funds when the direct deposit arrives. This could quickly cut into any funds you need for rent, food, a car payment or utility bills.

Whether you choose to borrow money from a payday lender or a bank, the fact that you need cash for an emergency should be a signal that you need to establish a spending plan so that you can find a way to save for a future financial crisis. Once your immediate crisis is resolved, you should consider meeting with a non-profit credit counselor or reviewing your own income and spending to avoid needing fast payday loans the next time you have an unexpected bill.

http://www.mercurynews.com/nation-world/ci_19324932

 

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.