Loan Blogger

Quick Cash Loans Justified by Credit Union Report

A recent report by the National Association of Community Credit Unions describes a need for temporary, small denomination financial loans. While several credit unions provide such loans, which ordinarily vary from $100-500, most leave such lending to stores that offer payday loans or cash advance loans, as they are sometimes called. These loans, which are offered for periods of fourteen days, carry fees that vary from $10-30 for every $100 borrowed, which can translate to rates of interest that can approach 1000% for every year.

The payday loan industry defends these products, saying that their customers know of the charges and that their products can really save their customers cash when they are short. The report by the NACCU seems to agree, as it pointed out that a typical payday loan of $100 with a $15 charge carries an interest rate of 391% annually. Then again, if the same customer bounced a check for $100, their bank or credit union might charge them a fee ranging from $35-50, a much higher rate when calculated on a yearly basis. The report also made comparable comparisons to bank card late charges or a late utility bill that required a late fee and a reconnect fee.

While it is true that, taken on a yearly basis, these fees are higher than those charged for payday loans, the comparisons are really between apples and oranges. The fee charged for a quick cash loan is deservingly calculated as interest, which is defined as a fee charged in exchange for the lending of cash for a specific amount of time. A penalty fee on a bank card or a bounced check fee, then again, aren’t interest. They are penalties, assessed for failing to follow the rules that the consumers agreed to follow. Writing a check with inadequate funds is not a loan, it is either a mistake or a crime. As such, the fee charged by the institution for doing so isn’t interest, and it is wrong to regard it as such. How strange that the NACCU would make those comparisons.

It is certainly true, however, that taking out a quick cash loan in order to prevent writing a bad check would save the consumer cash, provided that he or she paid back the funds within the standard two week period of time. The problem with this scenario is that many individuals who take out such loans aren’t able to pay back the funds punctually, and that causes the fees to double. Such is not the case with a fee for an unpaid check or an disconnected power meter.

The report is certainly correct in noting that society has a definite need for short term cash loans. Sometimes, we are just a bit short before payday and the ability to borrow a small sum until then would be valuable. It could be more helpful if financial institutions such as credit unions would offer such solutions themselves, rather than leaving their customers to seek out  more expensive cash elsewhere.