Alternatives to Payday Loans

I just met this afternoon with Tara Hamilton, a financial service officer from Les Bois Credit Union here in Boise.  I got so excited about the new product they’ve announced that I had to share. Please understand, though, that my excitement does not mean that I endorse the use of these services. I just want to make sure that those who are considering payday loans or expensive options for building their credit know about this product. Actually, Les Bois has two I’m thrilled with:

  1. A payday loan alternative: I’ll be honest, I’ve been hearing about this type of loan since I attended a Federal Reserve Bank of San Francisco symposium in Seattle back in 2006 or so, but I’m still happy to hear that an Idaho-based credit union has taken it on. Essentially, instead of borrowing $500 for two weeks with a 16%-20% fee (equivalent to a 416% to 520% APR, meaning the borrower has to pay back $575 after two weeks), this product is actually a $1,000 loan at 15% APR. Half of the loan becomes available immediately while the other half goes into a secured savings account that becomes available at the end of the repayment. Yes, 15% is still high for a loan, but it’s far better than the alternative. As a bonus, the monthly payments get reported to the credit bureaus to build the borrower’s credit. Approval is not based upon creditworthiness but does require a positive employment history and direct deposit.
  2. A credit builder loan: Like similar products from Key Bank (you’ll need to ask a manager, as they don’t advertise it) and Pioneer Credit Union here in Idaho, Les Bois’ credit builder loan essentially forces the borrower to save money at a negative savings rate. At 15% APR, it’s still high but, like the other product above, is far preferable to alternatives that would come with interest rates in the mid-double digits. Also like the other product, this requires a positive employment history and a direct deposit. There’s no money given to the borrower. In stead, the $1,000 is placed into a secured savings account. Les Bois also makes a portion of that $1,000 available to the borrower for use with each money payment received.

For details about these products, you’ll need to contact Les Bois or call (800) 444-6528.

Having been teaching money management for more than a decade in Idaho, I’ve heard far too many payday loan horror stories for my taste, so I send my appreciation out to these credit unions and this bank for their efforts to provide an alternative. If you know of others doing the same thing, please let me know!

Have a great week!

Todd Christensen-Author of Everyday Money for Everyday People, Todd ChristensenTodd Christensen
Everyday Money for Everyday People
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