A payday loan provider and a bank may seem a little different on the outside, but the services these two companies offer are actually very similar. Both types of lender offer clients important financial options that can help pay the bills and meet emergency needs. When you look at the concepts behind a payday loan company and a bank, you start to realize that they are not all that different. In the end, the financial well-being of the client is why these lenders exist.

Explaining Short-term Loans

First, we should compare these two financial institutions’ types of short-term loans and processing procedures. A payday loan is a short-term agreement that helps a consumer pay immediate financial obligations. A payday loan company offers an agreement that allows the client to borrow money against his/her next paycheck. The client gives the lender a postdated check for the amount of the loan, plus interest and fees, and then the company gives the client the money. If a customer does not repay a payday loan according to the agreement, then the loan company can use the postdated check to satisfy the agreement. In some cases, a lender will not require the postdated check. Payday loans that are agreed to online often do not require any paperwork. The application is approved, and the money is deposited in the client’s bank account within 24 hours.

Banks are also in the business of lending money in a way that is very similar to payday loan companies and have short-term loan products that can satisfy the customer’s emergency cash needs. A short-term bank loan works much the same way. The customer applies for the loan with the bank, and then the bank deposits the funds into the customer’s account. If a bank customer does not pay a loan back on time, then the bank will confiscate the funds directly from the customer’s account.

Interest and Other Charges

Another similarity between banks and payday loan companies is that they both charge fees for their services. A bank loan requires a monthly service charges and an interest charge that can add to the final value of the overall loan. A payday loan also has a service charge and an interest rate that is applied to the principal. Both lenders will charge you penalties and higher interests if you are late with your payment or default on your agreement completely.

A Common Goal

The goals of a payday loan and a short-term bank loan are the same. They are designed to help clients who want to avoid the embarrassment and potential financial problems that arise from writing checks for money that is not there. Banks and vendors will charge a fee each time a customer bounces a check. If the bank fee is $15 and a vendor charges $10 for a bounced check, then it results in a $25 fee for each check bounced. It is easy to see how this can all add up over time.

Short-term loans are products offered to help clients avoid those costly bounced check fees and prevent a cycle of borrowing. A borrower that does not have access to a payday loan or short-term bank loan can find himself getting behind on bounced check fees. Doing so can create a vicious cycle of borrowing that never seems to end. The payday loan stops monthly check bouncing fees and prevents that detrimental cycle. It can help the client get his or her finances under control.

Applying is Easy

Banks and lending companies make the application process for customers as easy as possible. Customers can apply for a payday loan online, and the application website will alert the client to any signed paperwork that needs to be faxed in to the company to complete the process. Banks also offer the convenience of online applications that allow customers to find out if they have been approved for financing quickly. A bank may also require information to be faxed or mailed to complete the process, depending on the requirements of the bank.

Good Deeds

The process and methods used by banks and payday lenders to approve and administer loans are very similar. Both types of companies also share in the positive effects that their short-term loan programs provide to clients. When clients get behind on mortgages, car payments or need money to buy groceries, they can sometimes resort to desperate measures. A short-term loan helps resolve this concern by making sure that responsible people are not put in bad situations.

Home foreclosures have been in the news in recent years as a part of the Great Recession of 2008. In some cases, a foreclosure can be the result of a cycle that began with one late or missed payment. A short-term loan can help prevent this cycle from ever starting and lowers the chances of foreclosure.

Conclusion

Banks and lending companies offer relatively similar services in very similar ways. The processes, methods, and end results are all geared toward helping the client financially.