Todd Christensen Profile Picture
Staff Writer at Debt Reduction Services

Avoid costly payday loans with these money-saving alternatives.

Banks are Finding Solutions for Consumers Trapped in Payday Loans

I’m so excited about some newer products that many banks and credit unions have here in Boise that I thought I would share more about it. 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 these products:

  1. A payday loan alternative: 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 on 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 on 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 the Pioneer Credit Union here in Idaho, credit builder loans essentially force 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. Instead, the $1,000 is placed into a secured savings account. Some money may be made available each time a payment is made. Otherwise, The amount in full will be released once the last payment has been made.

Having taught 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 banks for their efforts to provide an alternative. If you know of others doing the same thing, please let me know!

Also, if you need payday loan help, be sure to contact Debt Reduction Services at 877-688-3328 or enter your information on our website and a Certified Credit Counselor will be in touch right away.

Have a great week!

Todd Christensen

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