Why Credit Unions Can Do What Big Banks Won't Even Try
The refrigerator's on the fritz, your car blew a tire on the freeway, and your spouse needs to see a specialist about their bad back.
Unexpected situations pop up every day; they're part of life. For more than half the country, they're not just an inconvenience. They could spell financial disaster.
Sixty-three percent of Americans do not have the resources to absorb an unplanned expense of $500 or more. That means when an urgent medical situation arises or an unexpected car or home repair occurs, they can't just dip into savings to cover the cost.
Payday loans are a popular way to cover those expenses: one in 50 Americans rely on payday loans to make ends meet. We pay $9 billion in fees to payday lenders every year.
Getting a payday loan is not like getting a loan from your bank; in Michigan the annual percentage rate (APR) can go as high as 400% and the entire balance is often due in full when your next paycheck arrives. These predatory terms can turn an already challenging situation into dire financial straits, dragging families into an inescapable cycle of debt. In fact, 80% of payday loans are taken out within two weeks of repaying a previous payday loan.
Those loans aren't just harmful to individual families; our whole economy suffers when your hard-earned money goes into the pockets of predatory lenders instead of essential things like gas and groceries.
A Light At The End Of The Debt Tunnel
Credit unions have been innovating new alternatives to financially empower the communities we serve and provide viable alternatives to predatory lending practices.
At One Detroit Credit Union, for example, we offer a payday loan alternative called MyPay Today. Members are able to borrow $500 at an 18% interest rate and take up to 60 days to repay. That's a rate real people can actually afford and payment terms long enough to allow you to recover from the unexpected expenditures.
Access to emergency funds is not the only thing that makes credit unions different from banks. Credit Unions are nonprofits, owned by our members. (If you need a refresher on what a credit union is exactly, check out our previous post.) Those two distinctions allow us to focus on member needs, not shareholder earnings. That's why credit unions often have more affordable interest rates and offer programs that commercial banks would never touch because they wouldn't make enough profit.
Even who we lend to at a credit union is different from a bank.
You Are More Than Your Credit Score
If you've tried to get a loan or a mortgage recently, you've probably felt the post-bailout squeeze. Banks have really cracked down on their lending requirements, partially to compensate for their lose lending standards of the past. They're saving their loans for people with the best credit scores. But those aren't the only folks who need access to credit to buy their first car or go to college or fix up their home.
If you apply for a loan at a credit union, on the other hand, you're likely to have a different experience. Again, because credit unions are community focused, not profit driven, we're able to look at the whole person. Our underwriters don't immediately reject someone because of their credit score. We really work with you to figure out what you can afford and to get you the money you need.
Even if you've been rejected for a loan at a bank, a credit union may be able to help. They're also likely to offer you a lower interest rate on that loan. Banks make their money on fees and loan interest. Credit unions do, too, but our mission isn't to make money; it's to help our communities thrive. If you can’t afford the monthly payment, what’s the point? That doesn’t help us fulfill our mission, and it certainly doesn’t help you become financially secure.
At 1DCU, we are constantly looking for new ways to financially empower our community. The more members we have, the more citizens we can help break free from payday loans, buy-here-pay-here auto loans, title loans, third party check cashing and other predatory practices.
If you’d like to learn more about membership, we would love to talk with you. Feel free to reach out online or give us a call (313.965.8640) to start the conversation.