Comparing the Cost of NSF Fees vs Short-Term Loan Fees

Every day, people across the U.S. take out loans to help pay for various expenses. Personal loans, including short-term loans, can help cover home improvement expenses, emergency repairs or medical expenses, and even help cover you from paycheck to paycheck.

However, most loans have some sort of loan fees associated with them. You may be subject to an origination fee, service fee, prepayment penalty, late payment fee, application fee, rollover fee, or a non-sufficient funds (NSF) fee. That’s why reading the fine print on your loan agreement is always non-negotiable. Specifically, understanding short-term loan fees can help ensure you know what will be expected of you during the course of your loan.

In this article, we’ll take a look at two types of fees: short-term loan fees and the NSF fees we mentioned earlier. This knowledge can help you understand why having the funds you need to make your payments is important and why short-term loans might be a smart move.

What Types of Fees are Associated with Short-Term Loans? How are They Calculated?

As we mentioned above, depending on the lender, some short-term loans come with fees. Here is a quick breakdown of some of the fees lenders may charge and how they are calculated. 

• Origination Fee: This is usually a percentage of the loan amount, ranging from 1% to 5%. It’s deducted from the loan amount before you receive the funds.


• Service Fee: Some lenders charge a monthly or annual service fee to maintain the loan account. This can be a fixed amount or a small percentage of the remaining balance.


• Late Payment Fee: Lenders typically charge a flat fee or a percentage of the overdue amount if a payment is made after the due date. This fee compensates the lender for the risk and inconvenience of late payments.


• Rollover Fee: If you extend the term of your loan, lenders might charge a rollover fee. This fee can either be a fixed amount or a percentage of the extended principal.


• NSF Fee: Should a payment fail due to insufficient funds in your account, a non-sufficient funds fee is charged. The amount is usually a fixed fee per failed transaction, determined by the lender within legal limits.

Be Aware of Fees Before You Sign Your Loan Agreement

No matter what reason you may be taking out a short-term loan for, you must understand the responsibilities associated with taking out a loan. That said, let’s chat a bit about the challenges many Americans living paycheck to paycheck face daily. 

• Widespread Financial Strain: According to a recent GOBankingRates survey highlighted by Nasdaq, over 70% of Americans live paycheck to paycheck at least some of the time. Nearly half of the population (50%) experiences this situation continually, indicating a widespread struggle with financial liquidity.


• Lack of Emergency Savings: A significant concern is that 22% of U.S. adults have no emergency savings, leaving them extremely vulnerable to unexpected expenses. Without a financial buffer, any unplanned cost can lead to severe monetary distress.


• Risk of Incurring NSF Fees: The risk of non-sufficient funds (NSF) fees is particularly high for those living on the edge financially. These fees are incurred when an account lacks the funds to cover a transaction. NSF fees can be substantial, typically ranging from $20 to $40 per transaction as capped by state laws. The exact fee within this range is determined by the individual bank and can represent a significant financial burden to those already struggling.


• Vulnerability to Additional Debt: Individuals living paycheck to paycheck are often forced to rely on short-term loans to manage sudden financial shortfalls. While these loans provide immediate relief, they come with their own fees, potentially leading to a cycle of debt if not managed carefully.

When finances get tight, the risk of missing payments heightens. And if you schedule a payment but don’t have the funds in your bank account to cover it, you’ll get hit with an NSF fee. And, if this happens repeatedly, you can get hit again and again, potentially facing hundreds of dollars in fees that you are not prepared to pay back.

That’s why turning to a short-term loan may actually save you money. While the payday loan APR may seem high, it’s important to know that these loans are often the only choice for those with poor credit scores who don’t qualify for traditional loans with lower interest rates. Ultimately, what you pay for your payday loan interest rate can be far lower than those accruing NSF fees.

What are Non-Sufficient Fund Fees (NSFs), and Why are They More Expensive Than You Might Think?

Many borrowers do not realize that there is no federal limit to what an NSF charge can be. However, banks and lenders must disclose to you in writing, what the NSF will be, should you be faced with a charge. And you should understand that the fees can vary significantly across banks and lenders because there is no federal limit.

How Traditional Big Banks Apply NSF Fees

Traditional big banks often apply NSF fees to checking accounts when a transaction exceeds the account’s available balance, regardless of the amount of the transaction that results in the account becoming overdrawn. For example:

• Chase: Charges a $34 NSF Fee for each transaction that overdraws an account.


• Bank of America: Imposes a $35 fee for each NSF occurrence.

While a single NSF might seem minor, multiple transactions can lead to substantial fees. For instance, Bloomberg Law reported that a truck driver faced $245 in cumulative NSF fees during a challenging financial period.

Comparative Cost Analysis

Consider the cost of NSF fees versus a typical payday loan:

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  Payday Loan Costs: In California, for example, you can borrow up to $255, on approved credit. A $255.00 payday loan with Cash Loans Direct costs $45.00. For example, a $255 loan due in 14 days would have a repayment of $300 and has an Annual Percentage Rate of 460.08%*. 

  
  

  NSF Fees: If 10 small transactions each trigger an individual NSF fee of $34 (using Chase’s fee as an example), this results in $340 in NSF fees.

  
  

Comparing these, while the APR on payday loans might seem high, the absolute cost of multiple NSF fees from a bank can quickly surpass the fee for a small-dollar payday loan. In scenarios where financial management is challenging, opting for and applying for a payday loan could be more economical, considering the total potential fees from bank NSFs.

Avoid NSF Fees and Consider a Short-Term Loan from Cash Loans Direct

If you’re in a financial pinch and need some money to help get you through to your next paycheck, a payday loan from Cash Loans Direct can help. Don’t subject yourself to the cycle of NSF fees because you are short on funds to cover your everyday expenses. Get started today and see what loan options are available to you.

*The Annual Percentage Rate (“APR”) is the cost of your loan expressed as a yearly rate. The actual APR for your loan may be higher or lower, depending on the actual amount you borrow and your actual repayment schedule.