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Saturday, September 24, 2011

Is a Credit Union Any Better Than the Average Payday Loan Lender

Is a Credit Union Any Better Than the Average Payday Loan Lender

Personal finance advisors and columnists have worked hard to put the word out that credit unions are far better when it comes to fair customer dealings. When retail banking customers find their banking experience far from satisfactory at the large banks, the credit unions often appear as a breath of fresh air. So if the unions are so clean cut, what are they doing turning to the payday loan lender business?

Does this mean that the credit unions are trying to clean up payday loans? Are they going to do it right?charging borrowers reasonable interest rates and so on? The traditional loan business isn't all that happy with the way credit unions are entering their turf. Especially when they believe that they aren't going to be much more reputable than the traditional businesses have ever been. They are just unhappy that unions are going to take business away from them by pretending to be better than the traditional lenders.

Let's take a closer look. The National Credit Union Administration, which is the body that supervises federally chartered unions, is where the new credit union payday loan idea was born. They call these an alternative to what the traditional payday loan lender usually offers, for those who are tired of the predatory lending practices of those businesses.

People who borrow from the traditional payday loan lender are usually driven into debt by the high rates of interest and how they allow you to keep the loan indefinitely as long as you pay their killing rates of interest. The credit union loan on the other hand charges a perfectly reasonable 28%, they make sure that you don't get to borrow more than $1000, and they make sure that you don't get to keep it longer than six months. This has the effect of limiting how far people will end up driving themselves into debt. Only union members are eligible to apply.

So are these really fairer terms than what you find at your typical payday loan lenders? Well, the way personal finance experts see it, 28% is still quite expensive. But the unions help borrowers, by making sure that there are no extended rollovers allowed, protect their borrowers. So yes, you could say that they were fairer.

But this isn't the only type of payday loan they make. Some of their loans charge 100%. As expensive as that sounds, it's still cheaper than your regular loan lender. But isn't 100% rather extortionist nevertheless? Why would credit unions involve themselves in this kind of business?

Because they need to make money, like anyone else. And they feel they actually are bringing a degree of fairness to the industry by charging a mere 100%.

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By Melain Earcher

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