If you can get one, a personal loan without collateral from a bank or a credit union is a much better deal than a payday loan. The interest is much lower, and you have more time to pay it back. According to the Federal Reserve, the average interest rate on a personal two-year loan was 9, 75% in 2015. More importantly, you can pay in small, manageable chunks rather than in one go.
For example, suppose you have to borrow $ 500 for an emergency repair. If you went to a lender, you’ll have to repay the full $ 500 in two weeks – plus a $ 75 interest. If it took you six months to repay the money, you would have to renew the loan 13 times, with a interest of $ 975. As mentioned above, this results in an APR of 391%.
Suppose you went to the bank instead and received a $ 500 loan for a 10% premium for six months. Your payment would be around $ 86 a month. In six months you would pay less than $ 15 in interest – less than you would pay in two weeks with a loan on a payday.
One problem is that most banks are not willing to make such loans so small. While payday publishers usually cannot borrow more than $ 1,000 at a time, banks will typically lend no less than $ 1,000.
There is, however, another way to borrow money from the bank for a short period: protection against debit. With this service you can withdraw more money from the bank than you have in your account for a fee. This reimbursement is referred to as an NSF reimbursement for ‘insufficient funds’. In 2015, the average NSF allowance was $ 33.07, according to Bankrate.
That’s less than the cost of a payroll loan, but it’s still quite a hefty sum – and worse, you could pay it more than once. If your bank balance is in red, the bank will receive a separate NSF fee for eachtransaction that you do. So until your salary comes in, every purchase of a withdrawal, check and debit card will cost you an extra $ 33. At that rate, the costs can quickly add up to more than the cost of a flash credit.
So if you want to use excessive protection to keep you flooded until payday, do it carefully. If you have many small bills and only one big one, that’s more than you have in your account, you pay the little ones first. Then pay the big last, so that the NSF costs are charged and only touch your account again from the day of payment. That way you only have to pay the costs once.