The Finance Blogger


Banks stop offering payday-like loans

Payday LoansIt is about time that banks stop offering payday-like loans. Payday loans are notoriously expensive for consumers. When interest rates are so low, consumers should be able to find loans at very low interest rates. Unfortunately unless you have really excellent credit ratings, most consumers will not receive the low interest rate offers.  Instead they are offered high interest rate loans. This reflects the perceived increased risk that the banks perceive. This really costs the consumer a lot more money. Now that the banks stop offering payday-like loans, does this mean that they will now offer low interest rate loans to more people or does it mean they cannot get a loan at all from the bank.

Banks stop offering payday-like loans – costs

Consider a loan at current low interest rates of 3% vs a higher interest rate loan of 10% for $5000 over a 5 year term. Note that payday loans are much higher in terms of interest rates, however we will just compare these two to illustrate the difference in cost for a loan with a 7% higher cost rate.

The 3% loan over 5 years for $5000 will cost $381.18 in total interest costs and has a monthly payment of $88.46. The same loan with a 10% interest rate over 5 years and $5000 will cost $1,270.59 in total interest costs and has a monthly payment of $103.08!

This is a significant difference in total costs. Imagine the interest costs and monthly payments for a payday loan with much higher interest rates. Even credit card rates are not as high as pay day loan rates and credit cards carry a 20% interest rate charge. In addition there are often processing fees attached to these loans and if you miss a payment, the fees are astronomical. Consumers would do well to avoid these loans and just not spend the money that got them into a situation where they needed to borrow the money in the first place.

Banks stop offering payday loans – Loan Availability

Let’s hope that those people without perfect credit ratings, but not bad credit ratings, can qualify for low interest rate loans instead of the payday loans. They will save a tremendous amount of money by being able to pay only 3% for a loan. Time will tell whether the banks loosen the purse strings when it comes to payday loans.

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