As more states across the U.S. cap interest rates on payday loans, a number of the major banks are now offering a financial package which is very similar. Some people may argue its simply a wolf dressed up in dainty sheep-like clothing.
After all, if banks and credit unions can get away with lending $100 for a fee of $7.50, which in essence is an annual percentage rate (APR) of 261%, then why shouldn’t they? Its still a whole lot cheaper to the consumer than the typical 400% + APR which is levied on the borrower by payday loan companies.
Whats more, its also a lot cheaper than the overdraft protection that many banks offer. That can land a consumer with a $35 bill for an overdraft of only a few cents.
In Maryland, the banking institution ñ Wells Fargo ñ is considering introducing a direct deposit advance product. The state of Maryland has legislature in place which caps small loans with an interest rate of 33% but this does not apply to major banks.
The main problem here is that this type of loan is most attractive to low income bracket households ñ people who tend to live paycheck to paycheck. Because of this, if there’s a sudden shortfall in the amount of cash required, it becomes a very attractive proposition to either opt for a payday loan or something very similar in nature.
Thus, its all very well for those who have a chunk of disposable income at the end of every month to nay say and gloat over people who are less fortunate and who have to simply live on the tightest of margins due to earning a wage that leaves them close to a minimum wage. But when it comes down to it there are times when there is no alternative than to borrow using a payday loan or a similar financial product.
Are There Any Alternatives?
Yes, there are. Here are a few:
– Instead of opting for a payday loan or a similar type loan, ask your employer for an advance
– If you have any surplus items at home ñ perhaps in a garage or stored in the loft ñ consider selling them on eBay or Craigslist
– Take on a part time job in addition to your full time work, or ask to do some extra hours each week at your main job