We’ve all come across an unexpected expense from time to time.
- 60% of Americans couldn’t cover a $400 emergency expense without going into debt.
- If you need money urgently and your bank offers payday loans, it may be worth checking them out.
- However, a personal loan has other advantages, such as a higher loan limit and lower interest.
Many of us have been there. You had a car accident and now you have to pay the mechanic to fix it. This unplanned expense will cost you a few hundred dollars, and like 60% of Americans, you cannot cover it with your savings. In addition, he only has money left for the basic needs of his check account, and your next payday is several days away. What should you do?
You have a few options in this situation. Read on to learn about bank payday advances vs. personal loans, and how to decide which is best for you.
What is a salary advance?
A salary advance loan from a bank or an Credit Union It is what is known as a small dollar loan. These are loans in amounts typically between $100 and $1,000, made by a bank to account holders. The intent is to give consumers an alternative to predatory payday loans (discussed below) when they find themselves in a financial bind. If your bank offers these, you’ll get the money you need quickly and pay it back out of your next direct deposit paycheck, or over a period of weeks or a few months. You will be charged a fee (either a flat dollar amount or a small percentage of what you borrow) and interest for the service.
You may soon hear more about payday loans; a Bloomberg Law report in early October 2022 noted that federal regulators want banks to be able to offer them, but banks need more guidance from regulatory agencies to move forward. Personal loans, on the other hand, are now reliably available for your payday loan needs.
What is a personal loan?
A personal loan It is a fairly easy way to borrow a lump sum of money. They typically come with lower interest rates than many other quick-money solutions like credit cards or payday loans (and definitely lower than payday loans). However, if your credit is not in the best condition, you may not qualify for the best personal loan available rates.
Personal loans typically come in amounts from $1,000 to $100,000 and can often be funded fairly quickly after your application is approved. In some cases, you can get the money the same day or the next day. Is there another way to borrow money in a hurry? Yes, but you’ll probably want to stay away.
Try to avoid payday loans
While it may seem counterintuitive (after all, it has “payday” right in the name), it’s a good idea to avoid payday loans. And depending on where you live, they may be illegal in your area; they have been banned in 13 states and the District of Columbia. Payday loans are small, short-term loans, usually $500 or less, that carry a very high interest rate.
As of 2022, typical payday loan rates range from 28% to 1,950%. These loans often consumer trap in a cycle of debt from which they cannot easily escape. Can’t repay your loan on your next payday? Okay, the lender will turn it into a new payday loan for you! How kind of you. Your best option is likely to be a payday loan or a personal loan.
How do you choose?
There are a few things to consider when deciding between a salary advance and a personal loan.
How much money do you need?
A payday loan, if you can get one from your bank or credit union, is probably better for borrowing smaller amounts. If your car repair bill is $350, but the smallest personal loan you can get is $1,000, that’s not ideal. However, if your surprise expense is higher, you’ll likely get a better interest rate with a personal loan (plus payday loans from your bank may be capped at $500).
How fast do you need it?
If you can wait a few days and you have good credit, you may be better off with a personal loan, again because of the interest rates. That said, if your bank offers payday loans, you might be able to get approved fairly quickly if you’re an existing customer in good standing. You already have it registered and can access your finances in the form of your bank account(s). Plus, your bank can easily send the money you’re borrowing directly to your account.
How long do you need to return it?
This is where a personal loan probably has the advantage. You will have more time to pay off a personal loan (months to years) than a payday loan (weeks to months). But again, a lot depends on how much money you need to borrow.
Both payday loans and personal loans have their place, and if you’re ever in a bind and need to borrow a relatively small amount of money, both are worth considering. However, you definitely want to avoid payday loans.
The best personal loans from The Ascent for 2022
Our team of independent experts pored over the fine print to find select personal loans that offer competitive rates and low fees. Start by checking out The Ascent’s best personal loans for 2022.