Another Bank of the Big Banks Gets In Small-Dollar loans

Advertiser disclosure You're our first priority. Each time. We believe that every person should be able to make financial decisions without hesitation. Although our site does not feature every business or financial product on the market, we're proud that the advice we provide as well as the advice we provide and the tools we create are objective, independent easy to use and free. So how do we earn money? Our partners pay us. This could influence the types of products we write about (and the places they are featured on the site), but it does not affect our advice or suggestions that are based on many hours of study. Our partners are not able to be paid to ensure positive ratings of their goods or services. .

Another Big Bank Gets Into Small-Dollar loans
Often without interest and with very low fees, these loans provide a better alternative to payday loans.
By Cara Smith Lead Writer | Investments, auto loans crypto Cara Smith is a lead writer for NerdWallet, where she writes about investing, crypto and auto loans. She has reported on commercial real estate, housing and general business for Houston Business Journal, CoStar News as well as other publications. She was a student of psychology and journalism in The University of Houston, where she was the editor-in chief of the university's student newspaper. She lives in Chicago and is on the lookout night and day for authentic Tex-Mex across the Midwest.





Dec 9, 2022


Editor: Rick VanderKnyff Senior Assigning Editor | Los Angeles Times; University of California, San Diego; Microsoft Rick VanderKnyff leads NerdWallet's news efforts, and also manages the team responsible to expand NerdWallet content to additional topics in personal finance.

Prior to that, he was employed as a channel supervisor at MSN.com and as a web manager at the University of California San Diego as well as as an editor for copy and staff writer for the Los Angeles Times. He has a Bachelor of Arts in communications , as well as an master of Arts in anthropology.







A majority of the items featured on this page are from our partners who compensate us. This impacts the types of products we review and the location and manner in which the product appears on a page. But this doesn't influence our evaluations. Our opinions are entirely our own. Here's a list of and .



Wells Fargo, which operates more than 4,700 branches throughout the U.S., has rolled out a small-dollar loan program that offers immediate, automated loans received in minutes and with a fraction of the charges typically associated with payday loans.
The bank joins a growing list of major financial institutions -- U.S. Bank, Bank of America, Huntington and Trust, to name some -- that provide an alternative for the 12 million who take advantage of payday loans each year, most of them from communities that are systematically excluded from accessibility to conventional financial instruments. Because of the programs offered, a report by the Pew Charitable Trusts' Consumer Finance Project estimates that the annual consumer savings from the shady payday loans will eventually be billions of dollars.
"This is among the most significant developments in financial inclusion in decades," says Alex Horowitz the chief executive officer of Pew's Consumer Finance Project.
Payday loans -- tiny, high-interest loans that are secured by the borrower's next paycheck -typically target those who have few alternatives to borrowing money. The costs are high and the annual percentage rates that average 391%, according to the Consumer Financial Protection Bureau. In contrast, traditional personal loans are characterized by annual percentage rates between 6 and 36 percent.
They also have access to their customers bank accounts, lenders who offer payday loans are able to siphon money to pay back the loan, often before the borrower has had the chance to pay their bills or any other lenders. Loans from banks offer some relief to those who have nowhere else to turn during difficult financial times.
"Non-bank high-cost lenders could losing customers to banks. That's good news for customers," says Horowitz, who authored a analysis of the trends for Pew.
Pew researchers predict annual savings of more than $10 billion among borrowers, once most of the millions of customers who utilize payday loans switch to using banks' small-dollar loan programs.
How do small-dollar bank loans work
In Wells Fargo's Flex Loan plan, people can borrow $250 or $500. The $250 loan comes with a $12 fee, and the $500 loan comes with the same fee of $20. The loans are interest-freeand have no late charges or hidden charges, as per an account statement provided by Wells Fargo. The entire process can be completed using the Wells Fargo mobile app, and cash will be deposited into your account within seconds of making the loan. Borrowers repay the loan with four equal monthly payments -- a far contrast to the standard payday loans repayment schedule, which usually requires borrowers to pay back the loan between two and four weeks after borrowing.
And there's no credit check; the main qualifying requirement is having an account at the bank.
Most banks' appearances are similar to this, but they have different fees. In the Bank of America program, people can borrow $500 for a $5 fee. U.S. Bank, which was the first major bank to provide small-dollar loans and charges an additional $6 for each $100 borrowed. The Huntington Bank program also offers small loans between $100 and $1,000 for no fee but the interest rate is 1% per month. charge and 12percent APR.
You may be wondering: Are these loans only a way to repackage overdraft fees? The short answer is no. Overdraft fees typically range from $30. They are taken automatically from your checking account , and typically reimbursed in a matter of days and not months. And most overdraft fees are paid by those who have their accounts overdrawn more than 20 times per every year Horowitz says. At just $30 it quickly amounts to around $600 annually in overdraft fees.
If you look at the costs and repayment plans with small-dollar loans and taking overdrawn your account and overdrafting your account, you will see the savings.
"If somebody borrows $500 for three months, they'll have to pay less than an overdraft charge," Horowitz says. "It's an enormous distinction. The smallest loans are part of the way to avoid overdrafts as they provide people with a better alternative."
With the recently announced Wells Fargo program, six of the nation's 10 largest banks by number of branches offer small-dollar loans according to figures obtained from the Federal Reserve. The two biggest banks that do not provide small-dollar loans include Chase Bank and PNC Bank. Chase Bank confirmed this, adding that "we're always reviewing our products to ensure we're meeting the needs for our clients" in a statement to NerdWallet. PNC did not respond to a request for comment.
Together, the six biggest banks offering small-dollar loans have 15,289 branches in the United States, in accordance with the Federal Reserve. It's worth noting that neighborhoods with lower incomes -- the areas that are the most affected by payday lending have lost more branches of banks than higher-income neighborhoods from 2009 to 2017, during the aftermath of the Great Recession, according to an analysis by the Federal Reserve Bank of Philadelphia. Between 2014 and the year 2018, banks closed more branches than they opened in lower-income neighborhoods as per Bloomberg.
However, since these loans are offered through banks' mobile apps and are completely automated, the borrowers don't need to be in close proximity to the bank's branch to gain accessibility to the loans.
"The fact that these loans can be obtained through mobile banking online means that a person doesn't have to travel to branches," Horowitz says. "Even if they would have to travel several miles otherwise but they don't need to travel that distance to obtain the loans."
Another crucial aspect to consider is that many people aren't able to open the checking accounts necessary to get these loans. Banks may deny application from those with an history of fees for overdrafts, negative balances or not maintaining the necessary balances in their accounts. While second-chance checking accounts are accessible to customers with these issues, they're still missing out on the benefits of small-dollar loans.
"The biggest threat to payday lenders'
There's the reason payday loans have remained popular and available -- though restricted within 18 states, and Washington, D.C. -- in spite of their well-documented and infamous predatory practices It's because they're simple to obtain and have few alternatives. Because payday loans don't require a credit check, they've become one of the only short-term loans that are available to those with low or nonexistent credit. A majority of lenders will require an ID that is valid and proof of employment for full-time employees as well as an active bank account.
While payday loans are often advertised as a quick and easy way to cover unexpected expenses, about 70 percent of payday loan recipients use the money to pay for regular expenses such as utility bills and rent in accordance with an analysis done by Pew Charitable Trusts. The average payday loan borrower earns $30,000 annually; 58% of borrowers have trouble paying their monthly bills according to the analysis.
With one more major bank offering an option that's viable, and potentially spurring other banks to do the same, it's certainly not unattainable to envision a time in which payday loans no longer monopolize the small-cash loans sector.
"From an economic standpoint the banks' smaller loans likely pose the biggest risk to payday loan lenders, which has not yet to be established," Horowitz says.
It's worth noting that banks are not the first financial institution to offer payday loan alternatives. For over a decade credit unions have offered PALS, also known as PALS. These loans vary between $200 and $1000 and application fees that don't exceed $20. The National Credit Union Administration created PALS in 2010 to "provide members of credit unions an alternative to high-cost payday loans," the administration wrote in its filing.
On the fintech end, apps like Earnin, Dave and Brigit allow users to take small amounts of cash from their pay checks. These apps don't charge interest rates, however, they may collect fees for things like fast delivery or processing. Many apps also ask users to provide tips.
Banks have innovated in the space as well. Ally Bank eliminated all overdraft charges in 2021. SoFi does not charge any fees for transactions that cost under $50. While Chase Bank charges a $34 fee for each overdraft transaction- up to three times per day, with a maximum of $102 -- it doesn't start charging this fee until your account is drained in excess of $50.
To determine the availability of your bank's small-dollar loans make a phone call to your bank and ask about loans that are available to customers. If you have your bank's mobile application, look it up as a majority of these programs are available predominantly on the app of the bank.


Author bio Cara Smith joined NerdWallet in 2021 after reporting on business and real estate in Houston and Chicago for eight years.







In a similar vein...








Dive even deeper in Loans






Learn more about smart money strategies - straight to your inbox
Sign up now and we'll email you Nerdy posts on the topics in finance that are important to you and other ways to help you get more from your money.

If you have any kind of inquiries relating to where and the best ways to utilize $255 payday loans online same day california no credit check [https://loanasqfg.site/loanwq.site&$255%20Payday%20Loans%20Online%20Same%20Day], you can contact us at our own web-page.