Advantage of Using Banks Loans Compared To Payday Loans

Where Borrowers Find Loan Approvals

Advantage of Using Banks Loans Compared To Payday Loans

This client needs $3000 to pay for repairs to his car and his truck. He does not know what his credit rating is or if he even has one and he has been using a check cashing service to cash his paychecks from where he works as a laborer doing landscaping work. He has been doing this sort of work for some time and he enjoys it. He wants to know what the best approach is? Should he try to get a bank loan or should he just use the pay day loan services of his check cashing service?

Pay day loans are typically short term loans last less than 14 days and they carry very high interest rates since they are considered very high risk loans as well. Interest rates or APR can range as high as 525% which sounds astronomical, and it is, but that is the equivalent annual rate after all fees and interest is added in. The calculations below used an arbitrary 200% APR for a $3000 loan over a period of one year to illustrate what the cost will be for this loan. Even at this lower rate, the total cost of interest is more than the original loan! The monthly payments are also very high and may not be affordable.

We also included calculations for typical bank rates for personal loans. These have APR rates of 4% and 5% respectively.  The total cost of interest and the monthly payments are much lower as a result and much more affordable. Most banks will need demonstration of income, a list of assets and debts along with existing monthly payments. They want to know if you can afford to meet the monthly payments for the loan in addition to all of the other payments that a client may have. In addition they will look at credit ratings to assess the risk of a client. Based on all of this information they will make a decision to offer the loan or not and also at what interest rate.

This client does not have a bank account. He will need to have one and may be able to open it in conjunction with taking out the loan. He may be able to negotiate a better fee structure as well with the loan he is applying for. More discussion is needed before this loan can be properly assessed.


Personal Loan Amount :: $3,000

Personal Loan Application and Processing Speed (when do you need the funds):: In The next few days

Do you currently have a mortgage? :: no

Bank Name and Branch :: Bank of America, 4th street

What City/Town, State and County do you live in? ::Santa Monica, California

Zip ::90401

What is your employment field? :: residential landscaping

Employment Position :: Labor for a landscaping company

When are you paid? (monthly/weekly/biweekly):: Weekly

Your credit rating to be – excellent, fair, or bad? :: okay I guess, not sure what my credit rating is

How did you find us? :: looking for a loan online and wondering what the difference is between a bank loan and a payday loan

How are you paid? (direct deposit/paper check):: paper check

Gross Amount Per Paycheck :: $600

Do you agree to have this information published online, without your PRIVATE information of course? :: I really don’t care if the information is published online, just keep my name off any online documents

Extra information here please (some detail):: I currently work for a landscaping company, doing everything from cutting lawns, edging lawns, trimming shrubs and planting new landscape areas. This is a laborers type job and I’ve been doing this for the last 15 years quite successfully. I currently need a loan to help pay for some repairs to my car and also my truck that I use to get back-and-forth to the job site.

The repairs to my truck are only about $800, while my car needs major repairs including the tires, brakes and a new muffler system which will come to around $2000

Note to Lender :: I have been paid by paper check all my life and my employer will continue to do this for the foreseeable future. Since banks cost so much to maintain an account I have been using the payday check cashing service for the last year. They charge a percentage on each check that I cash which is expensive and I’m wondering if there’s a better alternative compared to using a pay day check cashing service.

In addition I want to know what the benefits are of a bank loan versus a payday cash loan? I’ve heard the payday loans are very expensive while bank loans are much more difficult to get but the interest rate that is charged on the loan is much lower than the payday loan. My boss was telling me that a bank loan even with the cost of having a bank account added in would be cheaper than going for a payday loan.

I would appreciate your advice on the best way to proceed with respect to applying for a loan and whether the bank loan would be the best approach for me compared to a payday loan.

Category: Home Mortgage Loan APR 200% APR 4% APR 5%
Loan Principal $3,000 $3,000 $3,000
Payment Schedule Monthly Monthly Monthly
Length of Term 1 1 1
Amount to be paid $6,249.39 $3,064.99 $3,081.23
Total interest paid $3,249.39 $64.99 $81.23
Paid per installment $513.65 $251.92 $253.25