The answer for many in recent years has been payday lenders, and more recently online businesses have taken over. More and more banks are moving in this direction. US Bank, a division of US Bancorp USB,
this week announced “Simple loan”, to help Americans who suddenly have to find money in a pinch.
To qualify for the simple loan, customers must have a checking account with the US bank. They can borrow between $ 100 and $ 1,000. They then have to repay the loan in three months, with three fixed installments. Lynn Heitman, executive vice president of US Bank Consumer Banking Sales and Support, said the loans offered a “trustworthy and transparent” option.
“
“What are the chances that they’ll be able to repay $ 100 at 15% interest over the next three months?” ”
“
They are similar to payday loans, which are used by millions of Americans who live from paycheck to paycheck. They usually cost a few hundred dollars and need to be paid off within a few weeks. Like payday loans, the simple loan is not cheap.
If borrowers pay directly through their bank account, through an automatic payment option, US Bank charges $ 12 for every $ 100 borrowed. If they choose to pay without an automatic debit from their account, it’s $ 15 for every $ 100 borrowed.
It can quickly add up. As an American bank States: “If you borrow $ 400 and select automatic payments, your fee will be $ 48,” the bank explains. “You will repay a total of $ 448 in three monthly installments of approximately $ 149.33 each. Your total cost of borrowing (annual percentage rate) will be 70.65%.
This is comparable to what some payday lenders can charge, but much more than regular personal loans. States set limits on the maximum amount that payday loans can cost in fees, and generally vary from $ 10 to $ 30 for every $ 100 borrowed, according to the Consumer Financial Protection Bureau.
“
“Your total cost of borrowing (annual percentage rate) will be 70.65%. ”
“
In May, consumer groups including the Center for Responsible Lending signed a letter asking financial regulators do not allow banks to charge more than 36% APR. “This type of product is not a safe alternative to a payday loan,” Rebecca Borne, senior policy advisor at the Center for Responsible Lending, said in a statement.
US Bank defended the charges. “We ran a pilot project between 2016 and 2017 and our customers overwhelmingly heard that they found the pricing easy to understand,” said a spokesperson for US Bank. “Additionally, during the application process there are three distinct times when customers are informed that this is an expensive product, that there may be other options and to contact us. they wish to discuss these options. ”
Soon you will be able to make payments without even thinking about it
US Bank is one of a number of banks to have initiated small loan amounts in recent times. Marcus, the consumer platform that is part of Goldman Sachs GS,
, made his debut personal loans in 2016 with rates from 6.99% to 24.99% APR. TD Bank, based in Cherry Hill, NJ, also offers unsecured loans, with lower interest rates 8.99% and more.
SunTrust US: STI, based in Atlanta
The bank has a national lending division called LightStream, which has been offering unsecured personal loans since 2013. LightStream promises to beat the APRs of other lenders, but they have to be approved at the interest rate of the other lender. Current rates range from 3.09% to 14.24%, when customers use automatic payment.
But given the high interest rates charged by many lenders, “I don’t think people should take this lightly,” said Rachel Podnos, financial advisor and lawyer based in Washington, DC. the loan is distributed, or penalties for prepayment of the loan. “I would be tired of these kinds of loans,” she said.
There has been an increase in personal loan offers
Banks are capitalizing on a trend. Personal loans are the fastest growing type of consumer debt in the past year, according to the Experian EXPN credit agency,
. Existing personal loan debt reached $ 273 million in the second quarter of 2018, up approximately 11% from the same quarter in 2017.
There has been an increase in the number of lenders offering fully online loans, including SoFi, Marcus, Prosper and Avant, Experian said. They also offer small short term loans. Some online lenders are less concerned about financial emergencies than customers who want to borrow for a luxury vacation.
“
“I’ve always thought that if you want to lower the cost of payday loans, you have to have traditional banks in the game.”
“
Another obvious risk is that consumers may not be able to repay a loan, and if they charge interest, they may find themselves stuck in a costly spiral. The companies “are marketing to people who don’t have $ 100 or $ 1,000,” Podnos said. “What are the odds that they’ll be able to repay $ 100 at 15% interest over the next three months?” “
Nick Clements, co-founder of personal finance firm MagnifyMoney, which previously worked in the credit industry, said banks could deliver on the Trump administration’s promise to ease financial regulation. For example, the acting director of the Consumer Financial Protection Bureau is seen by some to be more business-friendly than consumer-friendly.
Banks are a better option than payday lenders and pawn shops, he added. “We can pretend the need doesn’t exist, which leaves it to the pawn shops and payday lenders, or we can allow the banks to compete,” Clements said. “Traditional banks have the lowest cost of capital, integrated distribution through branch networks, and I’ve always believed that if you want to lower the cost of payday loans, you have to have traditional banks in the game. “
