Personal Loan Lenders

Are checking account advance loans better than payday loans?

Banks are jumping into the payday lending bandwagon by offering a product on similar lines as traditional payday loans. The erstwhile payday lenders are feeling the heat with some of the top banks in the US offering Checking Account Advance or Ready Advance Loans. which they say, have better terms and conditions for the borrower.
Let us find out the terms and conditions for a payday loan first. They are offered for an average term of 14 days with the average fees coming to $16 per every $100 lent. This is equivalent to a high interest rate of 417 percent. Compared to this, the checking account advance that the bank provides has an average period of 10 days with $10 fees for every $100 lent. This means on an average, an APR of 365 percent. In short, the borrower are struck in a loan cycle of 212 days per year for a payday loan while for checking account advance, this period is 175 days per year

The advance loans provided by the banks are for a two week or a month long period. However, unlike payday loans which ask you to submit a post-dated check or give information of the bank to retrieve the funds, banks pay back money to them by directly accessing the customer’s checking account.

What the bank says – The banks that offer these checking account advance loans are Wells Fargo, U.S.Bank, Regions, Fifth Third Bank and Guaranty Bank. These banks stress on the fact that the fees that they pay on these loans are quite less and that they do not have to go through the eligibly procedure because after all, they are the checking account customers of the bank itself. Wells Fargo, which charges a competitive fee of $7.50 per $100 borrowed, says that the money lent is for emergencies only. U.S. Bank which charges $10 for every $100 loan, reports a satisfaction rate of 96 percent among consumers.

What the Consumer Financial Protection Bureau says – The government’s new consumer watchdog, the Consumer Financial Protection Bureau have criticized short-term lending, payday loans as well as checking account advances; and have stated that none are any better.

The CFPB and consumer representatives state that the act of the banks voluntarily taking back the money from the customer’s checking account makes the whole thing unsafe, can cause banks to lose customers and remain struck with uncollected debt. For the customer too, it can be quite harrowing to pay back the advance. They may need to divert their funds for other expenses and will find it difficult to pay back the money. Payday loans may extend you a new loan if the original one is not paid but banks will not even give you a second loan, if the first one is not paid in full. Secondly, for better or for worse, banks report repayment history to credit bureaus.

The CFPB has put forth a study by the Center for Consumer Lending which says that the banks are looking at this move as a new way to generate high income rather than actually help consumers. The Consumer Financial Protection Bureau has said that they will be closely monitoring the products that these banks are offering. Nearly 19 million Americans are using payday loans and banks are definitely interested in getting a sizeable share too.

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Personal Loan Lenders