Military Financial Advice - Army Times

Cheaper alternatives to payday loans are surfacing

Listen up. More credit unions and banks are beginning to provide loans that are better alternatives to payday loans, for both the military and civilian communities.

It would pay to check out some of these options at nearby financial institutions before going to a payday lender.

Most service members who have taken out payday loans say they knew upfront how much the loan would cost. But only about two-thirds could later remember what that amount was, according to a study conducted earlier this year by the Consumer Credit Research Foundation, which is partially funded by payday lenders.

These payday lenders have been the subject of sharp criticism over the last few years because of concerns that they target the military community.

Payday loans are quick, short-term loans that are theoretically paid off at the next payday. You write a check for the amount — let’s say $300 — and the lenders give you that amount, minus their fee. In two weeks, they either cash your check, or roll it over for another two weeks, plus another fee. Those who cannot afford to pay off the loan on time and keep rolling it over find they pay big-time in the end.

At an annual percentage rate of 391 percent, among the lowest charged by payday lenders, that would add up to $586.50 over a six-month period. The lenders say it’s necessary to charge these fees because of their risks in lending the money.

Most people cannot afford these high fees. But for a variety of reasons, people do use these loans — they feel they lack any other alternative, they need the money fast and it’s easy.

The Consumer Credit Research Foundation says 13 percent of the enlisted personnel they surveyed had taken out a payday loan in the previous year. About 38 percent of those borrowers said they do not have enough choices to meet their short-term borrowing needs.

That’s beginning to change.

Does $21 sound better than $586.50? That’s what it would cost you to borrow $300 at the VyStar Credit Union in Jacksonville, Fla., using its new Pay & Save Loan program. You can borrow up to $750 for six months at an interest rate of 14 percent.

“We’re a cooperative. We’re not here to make a lot of money. We feel we can break even, and make a little money at 14 percent, and help our members. That’s the reason credit unions were formed, and we want to follow that mission of helping people who need this,” said Rich Alfirevic, executive vice president and chief operating officer at VyStar.

The VyStar Pay & Save Loan program started July 1 at its branch office at Naval Air Station Jacksonville, and will expand Aug. 1 to its other 21 branches in northeast Florida.

These alternatives to payday loans are increasing, said Roland A. “Arty” Arteaga, president and chief executive officer of the Defense Credit Union Council. Just a few of his examples are the “Pawnshop Buster Loan” at First Light Federal Credit Union at Fort Bliss, Texas; the Payday Assistance Loan at Credit Union West, at Luke Air Force Base, Ariz.; Early Payday Checking at Service Credit Union in Germany; Ready Cash at Pacific Marine Credit Union (Camp Pendleton and Marine Corps Recruiting Depot, Calif.; the Asset Recovery Kit loans at the Fort Bragg and Fort Hood branches of Pentagon Federal Credit Union.

While VyStar and other financial institutions offer other loans at lower cost for the borrower, this is an unsecured loan (not borrowed for a car or house, for example). This is for people who may not be able to get a loan any other way. Those who borrow must be members — it takes $5 to open a savings account to become a member. You also must have a steady job, and repay the loan by direct deposit.

Fast and easy is the operative phrase. Those who walk into the branch and apply for a loan should be able to leave with their money within a half hour, Alfirevic said. The credit union does not notify anyone in the borrower’s chain of command about the loan.

Only one Pay & Save Loan is allowed at a time. If the member applies for a second loan, he or she must go through budget counseling.

The credit union does ask the borrower to put 10 percent of the loan amount in a savings account, which is deducted upfront from the proceeds of the loan.

“We would like them to leave it in the account so they will have it when the loan is paid off,” Alfirevic said. “By law, they have to have access to their money, but so far, people have been leaving it there.”

The savings component was an idea suggested by the Jacksonville office of the Navy-Marine Corps Relief Society, because so often military people make payments for loans and have nothing left afterward. This loan program is a good alternative for people who may not qualify for assistance from the relief society, said Dave Faraldo, executive director of the Jacksonville area Navy-Marine Corps Relief Society.

“The whole idea is to lend money between paydays, and help them pay the debt and get out from under it quickly,” Faraldo said. Too often, he said, people who must borrow a few hundred dollars to tide them over to the next payday can not afford to pay the whole amount off by the next payday.

As always, if you have an emergency need, you should first check with your relief society — Navy-Marine Corps Relief Society, Army Emergency Relief, Air Force Aid Society, Coast Guard Mutual Assistance.

But before going to a high-cost payday lender, check with your military credit union or bank to see if they have an alternative that could save you money — and a lot of stress.

Got that? You’re good to go.