What Choice to Make Between Overdraft Protection and Payday Loans? KEY TAKEAWAYS The financial service market is oftentimes confusing, but when we need some cash in emergencies, we opt for short-term loans. Understanding which kind of fast short-term loan to choose in an emergency is vital. Learning the difference between overdraft protection and payday loans can save you in any situation.
The financial services market offers a wide variety of credit products. And the consumer is not always able to understand their differences.
Therefore, in situations where a person urgently needs additional money, they may overpay for the service simply because they do not know alternative options.
So, before deciding on a specific type of loan, it is better to get acquainted in advance with their differences and how they suit you.
Fast Short-term Loans for Emergencies
When opening a bank account, you will likely be offered overdraft protection, which can be considered as a quick loan for small amounts.
But this way to cover unexpected expenses is another alternative — payday loans.
Which option should you choose?
Learn about the features of each of these short-term loan types so you can make an informed choice.
Features of a Payday Loan
If you have already spent the average monthly income but unexpected expenses arise, it’s possible to take out a payday loan of up to $5,000.
You can get such a loan very quickly if you use such convenient lender matching services as
Payday Depot. Payday Loans Market size to grow by USD 8.4 billion from 2021 to 2026
Their advantage is that you have the opportunity to choose a suitable lender from a variety of offers.
The platform helps you with completing the application.
Also, it is an additional guarantee that the lender you contact will be reliable.
What are the benefits of payday loans?
You can receive them very quickly. The required amount will be credited to the bank’s account within 24 hours after agreeing on the details of the contract with the lender. Using the Payday Depot service, one can complete all documents online without the need to visit any financial institutions. The loan is repaid after receiving a payment check, but lenders allow one to repay it over a longer period—from 90 days to 2 years. Features of Overdraft Protection
If you opt-in to overdraft protection, the transactions can be completed even if all the money in the bank account has already been spent.
The amount the bank provides to cover such payments varies from $250 to $5,000 and, therefore, falls within the same range as a payday loan.
DID YOU KNOW? The average fee amounted to $26.61 U.S. dollars, down from $29.8 U.S. dollars in the previous year.
One obvious advantage is that you do not need to make a separate request for it from the bank if this service has already been activated.
However, according to other indicators, this method of getting extra money is inferior to payday loans:
This service is only available to persons with a good credit history. If the credit rating is below a certain point, the bank will simply refuse to activate it. Overdraft protection rates are very high, and you have no control over them. Using the services of the Payday Depot platform, it’s possible to choose a lender with the lowest interest rate and soft terms for repayment. Therefore, your deal will be more profitable than in a situation where the bank leaves no other option than simply agreeing to its high-interest rate. You can repay the money from a payday loan gradually in certain amounts. If you used money from overdraft protection, it will automatically be debited from your bank account as soon as any payment arrives there.
Both loan products serve the purpose of providing a small amount of money in an emergency.
But each of them has its own advantages, due to which some people are inclined in favor of a payday loan, while others are inclined in favor of overdraft protection.
The choice should be made taking into account your personal circumstances and after carefully calculating the amount you will have to pay back to the lender.
Frequently Asked Questions Ans: It is a line of credit attached to the checking account. If you run out of money and
have been approved for this type of loan, the line of credit can cover expenses so that you don’t bounce
checks, miss payments, or have the debit card denied.
Ans: It is usually a short-term, high-cost loan, generally for $500 or less, that is
typically due on your next payday. Depending on the local state law, payday loans may be available through
storefront payday lenders or online. Ans: No, an overdraft is not a loan in the traditional sense. It is more like a pre-arranged
credit line that your bank offers. Ans: They have a fixed interest rate rather than a variable interest rate. That’s because
repayment of the cash loans is expected to be in the form of one lump sum.