This is the 7th guest blog post in a series of 10 by Leah Gonzalez, a master's degree student in social work at the University of Texas in Austin and a graduate of Howard Payne University.
It may not be difficult to imagine you're in a place where your next paycheck is too far off with a bill looming over your head. Financial constraints are nothing new to many of us, but fortunately many of us also have reliable support or resources available to help.
But what if you had no support? You didn't have parents, brothers, sisters, or friends who knew your struggles or a reliable and sustainable source of income to provide hope in a dire situation. At this point, the promises of "fast cash" and "being approved in minutes" made by predatory lenders may seem like the only viable option.
The Center for Responsible Lending outlines a few things to look for when searching for a fair loan. These characteristics include:
- At least 90 days to pay back the loan;
- Ability to make payments in installments;
- There is no need for a personal check or unreasonable collateral (like a car title);
- Limits on loan renewals (renewing a loan more than four times can be more hurt than good);
- Realistically assess if you're able to repay the loan; and
- Avoid contracts that include a mandatory arbitration clause (agreeing would require you to attend a hearing if any issues arise (Rush, 2012)) (Center for Responsible Lending, 2012)
Credit unions and banks can offer small loans that fit these requirements. When access to a credit union or bank isn't available, coordinating a reasonable payment plan with the creditor may be an option.
Although alternatives can be found, consumers should be aware that dangers could still be present. Credit cards and bank programs called "deposit account advances" can have interest rates and fees comparable to payday loans (Carter, Plunkett, Saunders, 2010). By researching alternatives and becoming informed, a consumer can reclaim the decision making power in their finances.
Another option to payday and auto title loans that has been garnering attention within the past few years is a California-based company, Progreso Financiero. Progreso Financiero was created to provide low-income Hispanic immigrants with an alternative to payday loans. An article from the Los Angeles Times says "the typical borrower repays a $1,000 loan by making two $60 payments a month for 10 months — a total of $1,200. The company reports the payments to credit bureaus so its customers can build a conventional credit history" (Reckard, 2012). Some of the values held by Progreso Financiero include their commitment to lending to those who can afford repayments, providing credit education, and lending at fair rates. Progreso Financiero establishments can be found in California, and now in Texas.
For further explanation on payday and auto title loan alternatives, visit these sites:
Reckard, E. (2012). Progreso Financiero founder leaves the immigrant loan specialist. Los Angeles Times. Retrieved from http://articles.latimes.com/2012/mar/27/business/fi-mo-immigrant-loans-20120326.
Carter, Plunkett, Saunders. (2010). Stopping the payday loan trap- alternatives that work, ones that don't. National Consumer Law Center.
Center for Responsible Lending. (2012). Alternatives to Payday Loans. Retrieved from http://www.responsiblelending.org/payday-lending/tools-resources/alternatives-to-payday-loans.html.
Rush, L. (2012). Mandatory arbitration clauses – what you need to know. Williams-Kherkher. Retrieved from http://www.williamskherkher.com/articles-faqs/article-mandatory-arbitration-clauses/.