How Short-term Loans and Your Bank Interact
How Short-term Borrowing can Shield You from Costly Overdraft Charges
The rest of America may be in a recession, but banks will be getting a windfall this year. In 2009, United States financial institutions will collect $38.5 billion in overdraft charges. Interestingly, only 10% of customers pay almost 90% of these fees. The $38.5 billion in charges is almost twice the amount institutions collected in 2000. To the surprise of many industry analysts, overdraft charges have actually risen this year despite the recession. While the median charge in 2008 was $25, it rose to $26 in 2009. With Wall Street banks, the median charge is a whopping $35. These sources of money have become a massive source of capital for financial institutions and a prodigious burden on consumers.
The Shocking Data
Moebs Services conducted the research that led to the finding of the $38.5 billion figure. The firm surveyed 2,000 financial institutions and discovered that 44.5% of these financial institutions reported higher net revenue from overdrafts than their net incomes. This has helped financial institutions sustain profitability in the throes of the recession, albeit at the expense of consumers. Some experts point to government-mandated increases in overdraft fees as the culprit behind widespread increases. For instance, if your local post office increases the cost to $30, other retailers in the area will notice and raise their rates as well. Ultimately, banks do the same.
For the most part, the consumers who are paying are cash-strapped with poor financial management skills. Typically, they have credit scores of 590 or below. These customers are usually unaware of the dwindling balances in their checking or savings accounts, and so they end up unwittingly overspending. For this reason, consumer advocacy groups are calling for more transparency for these customers. For example, when balances reach a certain point, financial institutions might notify their customers by email, text message, or automated calls to keep them from overdrawing funds.
How to Offset NSF Fees with a Short-term Lending Solution
At some point in time you can easily make the mistake of balancing your checkbook incorrectly and possibly spending more than you thought you had. Unfortunately, over-drafting can be a costly mistake. NSF charges (non-sufficient funds) can add up quickly and depending where you keep your money, these penalties can be quite costly. When you're stuck with NSF fees and you don't have cash to pay them off or purchase anything else, you have a few options available until your next paycheck.
A quick solution to this problem would be to apply for a cash advance. You might be thinking "what a hassle, I have to drive myself to a cash advance store, wait to see if I am approved, and then face the embarrassment of being seen at a retail storefront location in public." There is a discreet and efficient way to apply right from the comfort of your own home. Simply apply for the money you need conveniently online. In most cases you can be approved the same day and have your approved balance deposited that night! Now the worries of not having enough put away, over-drafting, or paying off your NSF charges can disappear.
Avoiding Unnecessary Expenses
Here are some ways you can avoid costly penalties:
- Monitor your balance online. Some branches even allow you to receive alerts indicating your balance periodically via text message. Make sure you factor in checks that you've written that have not yet cleared.
- Remember automatic bill payments. Consumers often forget to allow for upcoming automated bill payments they have scheduled for utilities, cell phone bills, insurance, etc.
- If you're unemployed, call your institution. Some branches will waive charges under certain circumstances if the customer is currently unemployed. Your branch also may be willing to waive the fee if it is a one-time occurrence.
Do I Need to Have an Account in Order to get a Payday Loan?
In this modern era, it seems like banks are as common as retail brick-and-mortar payday loan locations. But it might be surprising to learn that not everyone does business with a financial institution on a regular basis. According to a Federal Reserve study, about one in 12 families belongs to a financial institution.
If your ultimate goal is to borrow without a valid account that accepts direct deposit, it may be time to reconsider. We can't think of any providers that will lend you advanced funds if you don't have a valid checking or savings product from a bank. If you read the basic qualification standards for borrowing, you will understand why: you must belong to a bank or credit union, be 18 years of age or older and bring in a valid income of at least $1,000 a month.
Why Having One is Essential
Your bank account is what makes the service possible. Once approved, funds are either deposited directly into your account or you will get a check from the lender. Providers typically do not offer cash over the counter anymore because it is less secure and harder to track for repayment purposes. If you visit a storefront location, you will likely be required to provide a postdated check for the amount you are borrowing in addition to any applicable fees. The provider will cash this check on a predetermined date. Most online lenders will automatically debit the balance you owe when repayment becomes due.
Once you get a better idea about how the short-term lending business works, you will likely have a better understanding about why providers require consumers have a bank account. It makes the transaction seamless and ensures there is a solid record backing up any transactions. This not only protects them, but also you, the consumer.
Can a Lender Access My Account if I am Late on Repayment?
It is now time for you to repay your balance plus any applicable fees. But what if you do not go into the office on payment day? Can the company actually go into your account to get back what you owe them? This is a very important question, because you need to know if they will take control and take the money if you forget. Or is this something that is illegal for them to do?
The way you can find out the answer to this question is by paying attention to each company's individual policies. Directly debiting you to get back what you owe them is not illegal if you provide them which your information and authorize them to go into the account. So know that there are a few situations where they can automatically retrieve the funds you owe them.
Generally they will make you leave a postdated check with them in the office when you apply for the service. This means that you are letting them draw the funds out and the assigned date. So you are giving them permission. This is the most common example of how this would work. Online providers work differently, however.
When you go online you cannot get them a postdated check. Instead, the lender will ask you for your information. They do this so they can electronically deliver the approved balance directly to you, which is very convenient. Then, on the day the balance is due; they will go back and withdraw the funds that are owed to them. Once again, this is all done for convenience. But you better make sure what you owe them is there!
What if I Never Receive the Funds?
As soon as you figure out that money will not be there you must contact the company immediately. If they try to withdraw funds that are not there, then you will face penalties from both the financial institution and the provider. This will make it even more difficult for you to pay off what you owe. You need to ask them for an extension, and they may be able to grant you one. Some other companies may make you take out another payday loan in order to fund the missed payment. Finally you might be able to work out a payment plan in order to give you flexibility. It is important that you take advantage of whatever option you might be able to get. You do not want to mess up this opportunity to get your finances right.