Short-Term Loans Help Members Break the Debt Cycle
Short-term loans are in demand. According to a recent Wall Street Journal report, payday lender and pawn shop share prices jumped in October. Some credit unions are taking this opportunity to provide similar products, but at a lower cost and with a different philosophy in mind. While payday lenders encourage repetitive short-term lending, credit unions present short-term loans as emergency-only solutions.
Credit unions that offer short-term, high-interest loans valued anywhere from $1,000 to below $500 recognize the product is both risky and low on profits. But they’re on their menus to fulfill members’ needs, and hopefully serve as stepping stones for members aiming to improve their financial situations and move onto lower-cost loan products, CU executives say.
XtraCash Managing Director Lon Neofotist, who spent more than 13 years working in the payday lending industry, said his partner credit unions view short-term loans as vehicles for moving struggling members onto lower cost, mainstream CU loan products.
“There are a number of credit unions that don’t want to offer short-term loans because of the stigma that’s associated with them,” Neofotist said. “But their members are getting these types of loans from somewhere, so they might as well offer them in-house. Hopefully, they can educate their members about how to get out of the cycle.”