We all have encountered unexpected expenses from time to time.
- 60% of Americans couldn’t cover a $400 emergency expense without going into debt.
- If you are in urgent need of cash and your bank offers payroll advance loans, this might be worth taking a look at.
- However, a personal loan brings other benefits, such as a higher loan-to-value ratio and lower interest rates.
Many of us were there. You were in a car accident and now you have to pay the mechanic to fix it. This unplanned expense will cost you a few hundred dollars, and like 60% of Americans, you cannot cover it from your savings. In addition, you only have money for the essentials in your checking account, and your next payday is a few days away. What to do?
In this situation, you have a few options. Read on to learn more about bank pay advances versus personal loans and to decide which one is better for you.
What is a salary advance?
A salary advance loan from a bank or a credit union is a so-called small loan. These are loans in amounts typically between $100 and $1,000 made by a bank to account holders. The intention is to offer consumers an alternative to predatory payday loans (see below) when they are in a financial bind. If your bank offers these, you can get the money you need quickly and pay it back from your next direct paycheck or over a period of weeks or a few months. You will be charged a fee (either a set dollar amount or a small percentage of your loan) and interest for the service.
You may be hearing more about salary advance loans soon; A Bloomberg Law report from early October 2022 found that federal regulators want banks to be able to offer them, but banks need more guidance from regulators to move forward. Personal loans, on the other hand, are already reliably available for your emergency loan needs.
What is a personal loan?
A private loan is a fairly easy way to borrow a sum of money. They typically have lower interest rates than many other quick money solutions, like credit cards or payday loans (and definitely lower than payday loans). However, if your credit is not in the best of shape, you may not qualify for the best personal loan rates available.
Personal loans generally range in size from $1,000 to $100,000 and can often be funded fairly quickly after your application is approved. In some cases you can receive the money on the same day or the next day. Is there another way to borrow money quickly? Yes, but you’ll probably want to stay away from it.
Try to avoid payday loans
While it may seem counterintuitive (it has “payday” right in its name, after all), it’s a good idea to avoid it payday loan. And depending on where you live, they may be illegal in your area; They have been banned in 13 states and the District of Columbia. Payday loans are short-term small loans of usually $500 or less that come at a very high interest rate.
As of 2022, typical payday loan rates range from 28% all the way up to 1,950%. These loans often seduce consumers caught up in a cycle of debt from which they cannot easily escape. Can’t pay back your loan on the next payday? That’s fine, the lender will convert it into a new payday loan for you! How kind of you. Your best choice is probably a salary advance loan or a personal loan.
How do you vote?
There are a few things to consider when deciding between a salary advance and a personal loan.
How much money do you need?
A pay advance loan, if you can get one from your bank or credit union, is probably a better fit for borrowing smaller amounts. If your auto repair bill is $350, but the smallest personal loan amount you can take out is $1,000, that’s not ideal. However, if your surprise expense is larger, you’ll likely get a better interest rate a personal loan (plus your bank’s salary advance loans, which may be capped at $500).
How soon do you need it?
If you can wait a few days and have good credit, you may do better with a personal loan because of the interest rates. However, if your bank offers salary advance loans, they could approve you fairly quickly if you’re an existing customer in good standing. It has already saved you and can access your finances in the form of your bank account. Plus, your bank can easily transfer the money you borrow directly into your account.
How long do you have to pay it back?
This is where a personal loan is likely to come out on top. A personal loan takes longer (months to years) to repay than a salary advance loan (weeks to months). But again, a lot depends on how much money you need to borrow.
Both salary advance loans and personal loans have their merits, and if you find yourself in a tight spot and need to borrow a relatively small amount of money, both are worth considering. However, it is definitely in your best interest to avoid payday loans.
The Best Personal Loans of Rise for 2022
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