Some Banks Are in the Payday Loan Business

[Mar 3, 2010.]

 

Payday loans allow people who are strapped for money to get cash between paydays. The no-credit-check loans allow even people with bad credit access to cash in an emergency. Although it's easy to get a payday loan, it's not always the smartest move because of the high interest rates.

Personal Loans Carry Extremely High Interest

Payday lenders often are criticized because of the exorbitant interest rates they charge customers. Getting a personal loan this way usually costs about $15 for every $100 borrowed. Now some banks are getting in on the payday loan business.

Fifth Third Bank is allowing checking account customers to borrow up to $500 until their next paycheck is direct deposited into the account. Once the paycheck is deposited, the loan is paid off. The bank also takes a fee of 10% of the loan, or an annual percentage rate (APR) of 120%, according to WTHR. While a 120% APR isn't as high as what most payday lenders charge, it's still extremely high.

Quick Loans at Banks: A New Trend?

Wells Fargo and US Bank also are giving customers personal loans to tide them over between paychecks. So what's going on? Why are banks getting into the payday loan business?

"It's a combination of the fact that we're in an economic situation where there would be a demand for it in addition to the fact these banks are going to be losing money from fees that they're not going to be able to assess for overdraft protection," Dr. Rachel Smith of the University of Indianapolis told WTHR.

Fast Loans Aren't Cheap Loans

Should you get a payday loan from a bank or cash advance store? Not unless you are super desperate. If you are using payday loans to get through the month because you don't have enough income, it can be very easy to get into a never-ending cycle of borrowing and accumulating more debt. Lenders who make payday loans are always going to charge high rates of interest to protect themselves from not recovering the money from borrowers who are seen as very risky.

Get Help If Necessary

It can be scary and stressful when you can't cover all of your expenses no matter what you try. But instead of borrowing a personal loan at interest rates that stretch well into the triple digits, consider finding a knowledgeable credit counselor who can work with you to straighten out your finances. You also may need to consider getting another job to boost your income.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.