Daily Dupaco

Tuesday, May 21, 2013

Alternatives to payday loans

We've heard it before: Payday loans are bad news.

But as a last resort, many cash-strapped consumers turn to the high-cost loans, which are cash advances on the borrower's wages.

The loans come with triple-digit interest rates and unaffordable repayment terms, which often leave borrowers trapped in a vicious borrowing cycle.

Tami Rechtenbach, vice president of member services at Dupaco, has seen the detrimental effects of these loans.

"I've seen people borrow $100 and pay back $500 because the fees rack up, their paycheck goes to the loan and then they run out of money and go back for more," she says. "It's like a whirlpool that sucks them in."

Many times, borrowers go straight to the payday lender because they're embarrassed and don't realize they have alternatives.

"Avoiding getting into that trap starts by coming to see us first," Rechtenbach says. "Each person will have a unique situation and a unique solution, so they just need to give us a chance to talk to them."

Here are some of the ways a credit union can leave cash-strapped borrowers money ahead:

  • Offer a path to success: Dupaco pulls the borrowers' credit and talks to them about their situation. The visit might include a credit history lesson or budgeting assistance through a Money Makeover. "We're going to take that opportunity to teach and counsel instead of offer a quick fix that leaves them getting sucked into that vortex," Rechtenbach says.
  • Offer a unique loan:  Many borrowers don't realize they could have qualified for a loan by using their car or home as collateral.
  • Offer a credit card: Helping the borrower get on the right path might include something as simple as a low-interest Dupaco Visa credit card.
  • Offer a less costly fee: If members need money quickly, their Dupaco account might qualify for Overdraft Privilege. Each overdrawn transaction comes with a far less costly fee than those charged by a payday lender.

By Emily Kittle

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