Small Loans From Your Bank, Overdrafts and Cash Advances Compared
If you have a checking account, you may already qualify for a small loan that costs a few dollars instead of a few hundred. Some other bank options cost more than they look.
This guide is general information for borrowers in the U.S., not financial or legal advice. Lending laws differ by state and change over time; check with your state's financial regulator or a nonprofit credit counselor about your situation.
Key points
- Some large banks offer existing customers small loans for a low flat fee, repaid over a few months.
- Bank of America's Balance Assist, for example, lends up to $500 for a $5 fee.
- Overdrafts are a very expensive way to borrow, even though they don't feel like a loan.
- A credit card cash advance costs more than a purchase but far less than a payday loan.
Banks were mostly absent from small-dollar lending for years. That changed after federal bank regulators issued joint principles in 2020 encouraging banks to offer responsible small loans. Several large banks now offer short installment loans to their checking customers, often for a flat fee.
Bank small-dollar loans
These products differ from bank to bank, but they tend to share a few features: you need a checking account in good standing, often for several months or a year; the loan is a few hundred dollars up to about $1,000; and you repay it in installments over about three or four months.
One well-known example is Bank of America’s Balance Assist. The bank describes it as a loan of up to $500 for a flat $5 fee, repaid in three equal monthly installments, available to customers who’ve had a checking account with the bank for at least a year and meet other requirements. Other banks have launched similar products with their own names and terms, so look in your bank’s app or ask.
How the options compare
| Option | Typical cost to borrow a few hundred dollars | Watch out for |
|---|---|---|
| Bank small-dollar loan | A small flat fee or low interest | Eligibility rules; only for existing customers |
| Credit union PAL | APR capped at 28%, plus up to $20 to apply | Some require a month of membership |
| Credit card cash advance | A fee (often a percentage of the amount) and a higher APR with no grace period | Interest starts on day one |
| Overdraft | A flat fee per item, which can be large relative to the purchase | Several small purchases can each trigger a fee |
| Payday loan | Often $10 to $30 per $100 for two weeks | Rollovers that add a new fee each time |
Why overdrafts are expensive credit
An overdraft doesn’t feel like borrowing, but it is. In a 2014 study, the Consumer Financial Protection Bureau found that a typical debit card overdraft was about $24, the typical fee about $34, and most were repaid within three days. As a loan, that works out to an APR of about 17,000%.
Helpful step
If you overdraw occasionally, ask your bank about linking a savings account to cover overdrafts, low-balance alerts and whether you can opt out of overdraft coverage for debit card purchases so they’re declined instead.
Cash advances: better than payday, worse than a purchase
A credit card cash advance usually carries a fee and a higher APR than purchases, and interest starts right away. Still, borrowing $300 for a month this way typically costs far less than a payday loan, especially if you repay quickly.
Where to start
If you bank somewhere that offers a small-dollar loan, start there. If not, look at credit union payday alternative loans, and see whether local assistance programs can cover part of the bill so you need to borrow less.
Common questions
Why don't banks advertise these loans more?
They're usually offered only to existing customers who meet account history requirements, so banks tend to show them inside online banking or the mobile app rather than in ads. Search your bank's app or ask a banker.
Does applying affect my credit?
It can. Bank small-dollar loans are credit products, and Bank of America, for example, says applying for Balance Assist involves a credit inquiry. Ask your bank how it reviews applications.
Is overdraft protection a good backup?
Linking a savings account to cover overdrafts usually costs little or nothing. Paying a per-item overdraft fee on a small purchase is a very costly way to borrow.
