A 2007 study from a financial nonprofit in Wisconsin found these unsavory facts about payday lending:
- Payday loan interest rates and fees typically run between 650% and 780%.
- The average payday loan ranges from $100 to $500. A typical $500 two-week loan costs the borrower about $650 to repay.
- If you roll over a $500 two-week payday loan for 90 days, that loan costs the consumer approximately $900 in fees and interest. Over the course of a year, it would cost the borrower $3,900.
- 91% of payday loans “are made to repeat customers [or] cash-strapped workers who fall into a debilitating cycle of high-cost debt.”
While the credit union's system offers a much better financial option, it has some other restrictions that you won’t find at standard payday loan firms. For instance, to accept the loan, members have to agree to pop 7% of the total amount of the payday loan into their savings account. So for every $500 a member borrows under the program, $35 goes straight into his or her savings. That’s not a wheelbarrow full of cash, but it does help keep consumers thinking about saving, and not just spending, when considering a payday loan.
Gardner freely admits the SECU payday loan program “was designed as an alternative to high-cost payday lenders,” so if more small banks follow suit, maybe the payday industry can drag its reputation out of the ash heap. That would be good for both lenders and borrowers.
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