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Payday loans available from credit unions

[Jun 15, 2011.]

 

While quick payday loans should be used only in an emergency, these loans can be a lifesaver for consumers without savings or available credit. The danger comes when borrowers cannot repay the loans or are forced to continually apply for additional payday loans. If you do need an occasional payday loan, a credit union may be a good place to get one.


According to The Washington Post, more than 500 federally insured credit unions across the country offer short-term, small loans that are similar to traditional payday loans. If you don't belong to a credit union, you may be able to find one that can join by searching the National Credit Union Administration (NCUA). While some credit unions require employment in a particular industry, others are open to anyone within a region.


Payday loans and credit unions


The Washington Post reports that in September 2010, the NCUA raised the allowable annual interest rate for short-term loans to 28 percent, up from 18 percent. In return, credit unions must allow borrowers 30 days to repay the loan and cannot make more than three short-term loans to the same borrower within six months. Some credit unions opt to offer payday loans outside this federally regulated program, and will therefore be able to charge a higher interest rate. In addition, some credit unions charge an application fee on top of the interest for these loans.


The amount charged varies from one credit union to another, so be sure to compare payday loan offers from one lender to another before choosing the right loan. According to The Washington Post, some credit unions, such as the State Employees Credit Union in North Carolina, charge just 12 percent interest without any fees for short-term loans. Others, such as Mountain America Federal Credit Union in Utah, charge the equivalent of 876 percent annual interest. However, that interest rate is generated by turning a short-term loan fee into an annual percentage rate. The Mountain America credit union charges $12 on a five-day, $100 loan. As long as the borrowers have repaid the loan within five days, the fee is just 12 percent of the loan amount.


Regulations in many states restrict interest rates for payday loans to a maximum of 36 percent. The Pentagon also restricts loans made to active-duty members of the military to an interest rate of 36 percent.


If you find yourself relying on too many payday loans, regardless of the interest rate, this should be taken as a sign of financial distress. Consider consulting with a non-profit credit counselor to develop a spending and saving plan that will reduce your dependence on short-term loans.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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