The recession continues and many people are finding it hard to make ends meet, thus the increase in payday loans. But, there are many alternatives to these short term loans.
1. Non-bank credit union loans
Did you know that in 2001, the North Carolina State Employees' Credit Union launched its Salary Advance Loan program - known as SALO - which offers no-fee loans with a 12 percent interest rate. Any members can borrow up to $500 per month, to be repaid monthly with funds from their next paycheck, thus a payday loan. They even force 5 percent of the loan and put it in a savings account to create a "rainy day fund" for the borrower.
Prospera Credit Union and Goodwill in Wisconsin started GoodMoney, a quick cash lending solution to compete with payday lenders and sponsor financial workshops, money, debt management, and budget advice.
2. Loans from small banks
In 2008, the FDIC started a new program, the Small-Dollar Loan Pilot Program, which was a way to study and analyze banks offering what were equal to cash advances or short term loans based on a much lower cost product compared to payday loans.
The project included 31 banks across the United States offering loan amounts of up to $1,000 with interest capped at 36 percent and payment periods that extend beyond a single paycheck cycle
SDLs were typically $700, and the loan length average was 10 to 12 months.
NSDLs' typical amount was approximately $1,700, and the average payoff period was 14 to 16 months.
Both loans' interest rates averaged around 13 and 16 percent, but the typical rate was 18%
About half of the banks charged an origination fee (average fee was $31 for SDLs and $46 for NSDLs), and when this fee was added to the interest rate, all banks were within a 36 percent annual percentage rate.
The key was that the financial institutions were giving consumers the chance to get short term loans with much lower standards than banks would typically require and eliminate hidden costs, including prepayment fees, closing costs or other fees.
Counseling for Consumers About Credit
If you need a payday loan, you can't benefit from credit counseling in the short-term, but you need a credit counselor to help you to start planning to avoid need short term loans in the future. It is critical that your counselor is aligned with the National Foundation for Credit Counseling, a reputable foundation that offers consumers free courses related to every aspect of your financial situation: budget counseling, debt management planning, and mortgage default or rent delinquency counseling.
Other options
Getting a credit card cash advance will likely cost 25-30% annualized, but that is much better than an expensive quick cash advance. Also, try and discuss your situation with each creditor (utility company, auto loan company, landlord, etc.). The vast majority of creditors would
rather work out a deal than pursue litigation. Your last option should be a money advance.
1. Non-bank credit union loans
Did you know that in 2001, the North Carolina State Employees' Credit Union launched its Salary Advance Loan program - known as SALO - which offers no-fee loans with a 12 percent interest rate. Any members can borrow up to $500 per month, to be repaid monthly with funds from their next paycheck, thus a payday loan. They even force 5 percent of the loan and put it in a savings account to create a "rainy day fund" for the borrower.
Prospera Credit Union and Goodwill in Wisconsin started GoodMoney, a quick cash lending solution to compete with payday lenders and sponsor financial workshops, money, debt management, and budget advice.
2. Loans from small banks
In 2008, the FDIC started a new program, the Small-Dollar Loan Pilot Program, which was a way to study and analyze banks offering what were equal to cash advances or short term loans based on a much lower cost product compared to payday loans.
The project included 31 banks across the United States offering loan amounts of up to $1,000 with interest capped at 36 percent and payment periods that extend beyond a single paycheck cycle
SDLs were typically $700, and the loan length average was 10 to 12 months.
NSDLs' typical amount was approximately $1,700, and the average payoff period was 14 to 16 months.
Both loans' interest rates averaged around 13 and 16 percent, but the typical rate was 18%
About half of the banks charged an origination fee (average fee was $31 for SDLs and $46 for NSDLs), and when this fee was added to the interest rate, all banks were within a 36 percent annual percentage rate.
The key was that the financial institutions were giving consumers the chance to get short term loans with much lower standards than banks would typically require and eliminate hidden costs, including prepayment fees, closing costs or other fees.
Counseling for Consumers About Credit
If you need a payday loan, you can't benefit from credit counseling in the short-term, but you need a credit counselor to help you to start planning to avoid need short term loans in the future. It is critical that your counselor is aligned with the National Foundation for Credit Counseling, a reputable foundation that offers consumers free courses related to every aspect of your financial situation: budget counseling, debt management planning, and mortgage default or rent delinquency counseling.
Other options
Getting a credit card cash advance will likely cost 25-30% annualized, but that is much better than an expensive quick cash advance. Also, try and discuss your situation with each creditor (utility company, auto loan company, landlord, etc.). The vast majority of creditors would
rather work out a deal than pursue litigation. Your last option should be a money advance.
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