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FDIC guidelines for small loans

June 24th, 2010

The FDIC has laid out the guidelines for banks to give small loans to consumers. It is hoped that banks will use this alternative instead of high interest credit cards.

The loans will be $2,500 or less and the APR can not exceed 36%. The time to repay the loan is 90 days or more.

This seems like a good deal for the consumer. If you focus on the 36% APR it looks high. But remember that this calculation accounts for the fees you pay to arrange the loan. For example, if you borrow $2,500 for 3 months at 7.5%, and the fees were $150, the APR is 43.4527%. The total interest is only $33.20.

To bring this loan within the guidelines, the interest rate would have to be reduced to 0.3%. Or you can reduce the fees to $115 and keep the rate at 7.5%.

This is another way the banks will compete in the lucrative market of pay day loans. If you have an emergency and need money for the mortgage or property taxes, this is a good deal.

Entry Filed under: The call for state owned banks