Is it better to take out an instant payday loan that face an overdraft fee? You need to know before making a financial decision. Here’s what to do.
Oh no! You forgot you wrote a check, and now it might bounce.
Even with overdraft protection, the fees can be significant.
Or, you could get an instant payday loan to cover the shortfall.
Which is the better, less expensive choice?
Here’s what you need to know to make the best decision.
First, what’s an instant payday loan?
An instant payday loan is pretty much what it sounds like.
It’s a short-term personal loan that can help you cover an emergency cost.
Say, like an overdraft situation.
Yes, there are costs involved in a payday loan.
But read on – they can still be lower than what the bank will hit you with.
And, you’ll know up-front what you’re getting.
How well do you know your bank’s overdraft policy?
At its most basic, overdraft sounds exactly like what it is.
Taking out more money than you have in the account.
But did you know there are two versions?
And that each comes with its own costs?
This is where personal finance can get a little murky.
Bonus tip: overdraft isn’t the only thing at the bank that can cost you.
But keep going, we’ll sort it all out for you.
Arranged or not
You may be thinking that getting ahead of the situation is best.
So, you ask your bank to set up overdraft protection for you.
That’s considered “arranged overdraft” or “courtesy protection”.
But, they’re not doing it out of kindness.
Banks want to make money like everyone else.
Let the fees begin!
Fees, fees and then more fees
First up: setup fees for arranging the service.
Wait, a fee to pay a fee? Pretty much.
Some banks waive them, but for some, it can be upwards of $35.
Next to come out of your account: a monthly fee.
While it may be as little $5 each month, that’s still $60 a year.
And then finally: interest rates.
You’ll be charged an interest rate that varies from bank to bank.
Think about it this way:
- If your overdraft is for $56
- And you’re charged $20
- Translated into an annual percentage rate (APR), that’s 13,000%.
And no, that’s not a typo.
So even if you think that’s horrible, it’s still likely cheaper than its unarranged cousin.
And then, it bounced
Remember that check you forgot you wrote?
Your bank didn’t.
And now you’re overdrawn.
Sometimes, if you catch it in time, you can call the bank.
But you didn’t realize it until your card was declined at the grocery.
Now, you’ve got fees with a side helping of embarrassment.
You also realize it will be several days until you get paid, maybe longer.
Now what happens (if you don’t get an instant payday loan instead)?
There’s more than one kind of fee
In an unarranged overdraft, there can be several kinds of fees.
Let’s say tomorrow is payday, and you’ll only be short one day.
Some banks actually charge short terms fees.
Yes, on top of the rest of the fees.
There can also be fees for every day that you’re overdrawn.
Plus, if it would happen to span across two periods (say the first and last day of the month):
And, you guessed it, there’s a fee for that, too.
And then there’s a second check
While the snowball effect can sound fun to a kid, to you it’s no laughing matter.
That first check is still overdrawn, which was unexpected.
Now, there’s another one (maybe an auto payment you have set that you forgot).
The fees may compound, leaving you financially even further behind.
The fees keep coming
Maybe this isn’t your first overdraft. Or even your second.
At a certain point, banks may begin charging more per incident.
That fee that was $25 is now $35.
And it (usually) doesn’t come back down for good behavior later.
I get it, but what else can I do?
An instant payday loan may be the right answer for you.
The fees can be cheaper than your bank will charge you.
It can also help avoid another overdraft if payday is more than a few days away.
Plus, payday loans can be processed quickly to get you in the black, fast.
Be aware, though.
A payday loan is often repaid by auto draft.
Mark your auto payments on the calendar, so you remember.
Don’t end up in an endless loop of overdrafts and trying to cover it.
Tips to avoid overdraft
Here are some ways to avoid overdraft once you’ve gotten things under control.
You can tell the bank to not pay the check.
While whoever you wrote the check to won’t be happy, their fees may be lower.
But be careful!
If it’s a payment on your credit card and you’re late, those fees could be even higher.
Holds count, too
A gas station may put a $50 hold on your funds when you use your debit card.
Though it’s generally short term, as you’ve learned, one day matters!
Try using cash or a credit card if you think it’s a station that places a hold.
Get an alert
Many banks offer alerts when your account dips down.
Set up an email or text to let you know if things are looking slim.
Make sure you set the alert at a reasonable amount, too.
Too high, you might ignore it.
Too low, and you might not have time to correct it.
Sharpen up your budget skills
Know what you’re spending, where, and when.
That way things won’t sneak up on you.
Cash for small purchases can be a good idea, too.
That way, your morning coffee won’t send your account into a tailspin.
Budget isn’t a bad word, get some tips that can work for you.
How we can help
We’re here to help keep the rubber out of your chequebook.
Everyone makes mistakes sometimes, it happens.
At Pretty Penny Loans, we want to help you the fastest way possible.
We offer instant payday loans to get that check covered, pronto.
Apply today to get started.
Have a bank overdraft horror story? Share it in the comments!