Many people take out payday loans because they see no other option. Holy Rosary Credit Union is one of several Catholic credit unions in Missouri trying to educate people about safer, more affordable loan options.
Carole Wight, president of Holy Rosary Credit Union in Kansas City, said the credit union provides a seminar to alert people to the dangers of getting caught in a payday loan cycle.
Holy Rosary Credit Union also offers its members a couple of alternatives to payday loans. One of the alternatives has a low interest rate that is based on a sliding scale. For instance, if a borrower has direct deposit or an active checking account in good standing, the credit union can reduce the rate. The average interest rate the credit union charges is about 13 percent, according to Wight.
Wight said the ability to charge a low interest rate enables the credit union to have extremely low default rates.
Another loan the credit union offers is for people already caught in the payday loan cycle. Borrowers can get a payday consolidation loan for up to $2,500 to pay off current payday loans. While the credit union does perform credit checks, Wight says the credit check doesn’t keep borrowers from getting the loan.
Phil Minden, chairman of Choices Federal Credit Union in St. Louis, said Choices also offers loans meant to be alternatives to payday loans. The StretchPay loan is a loan of up to $250, which members can borrow without a credit check. They are expected to pay it off in two payments during a 60-day period. Minden said that while people must be members of the credit union for at least 60 days before they make the loan, it’s a “no questions asked” kind of loan and as soon as they pay it back they can take out another StretchPay loan. However, members can’t have two of these loans out at once.
Minden said Choices Federal Credit Union has made about a dozen of these loans since December, and every loan was paid off.
He said the people who take out these loans are typically those with fixed or low incomes that had an unexpected expense, such as a medical bill or car repair, come up.
Payday loans are a way “to smooth out the income stream,” Minden said.
Choices Federal Credit Union also offers an option for people already caught in the payday loan cycle. The signature loan allows borrowers (after a credit check) to consolidate other loans and take a loan out for up to $1,500. The signature loan is repaid over 12 months.
The alternatives offered by credit unions can help people get out of the payday loan cycle and allow them to get through an emergency without getting trapped in debt.