New Loans for Some Credit Unions
March 5, 2008
In a move to help increase memberships, many credit unions are beginning to offer their version of the payday loan. These loans are typically very short term and come with a higher interest rate than traditional loans offered by most credit unions. Even so, they are often more affordable than the corner payday loan consumers have been taking out.
This new trend in lending is becoming very popular with many of the community based credit unions. A community based credit union allows membership to those who live in the area, as well as to those who work, study or worship in the area.
Depending on the credit union’s policy, a typical loan might look like this: A loan may have a cap on it of $1,000 or 50 percent of the member’s salary, whichever is less. At one credit union, the borrower will pay a $15 application fee for a 30-day loan. If the borrower agrees to a credit report consultation, the application money is refunded. The typical loan has an 18 percent annual percentage rate, but the credit union will cut that down to 16 percent if the borrower sets up a direct deposit account with the credit union. The interest on this loan equals about $15.
Under a plan like this the credit union breaks even on the loan, but they increase their membership level which is the goal behind the payday loan offering. Many credit unions firmly believe that their long term profit is in building membership levels.
Consumers who are interested in these types of loans should understand that most credit unions will require a direct deposit account be set up in order to get the best deals on interest rates.