A Community HOPE PAL is an alternative to a payday loan.
What is a Payday Loan (PDL)?
A PDL is a short-term (generally 2 weeks) cash loan that must be repaid in full on the due date. The loan is quick and convenient. Average loans for Nebraskans are between $300 and $400 and usually take 6 months (13 two-week periods) to repay. Typically, you will write a post-dated check that includes the fees that are used as “collateral” for the loan, or sign an authorization to debit your account on payday. Generally, you will have to bring in your last checking statement, pay stub, and provide a couple of references.
What are the risks of getting a PDL?
- They can be very expensive. Nebraska payday lenders can only charge up to a maximum fee of $15 for every $100 borrowed. To find the amount of fees you will pay, divide the amount of the cash you need by .85 (85%). So, a loan of $350 could cost you $61.76 for a 2-week period. You write a check (post-dated for 2 weeks) payable to the payday lender for $411.76. That translates into an Annual Percentage Rate (APR) of 460%!
- What happens if I can’t pay the loan off on the due date? That’s when the trouble begins. Let’s say you don’t have $411.76 on payday to cover the check. You pay the fees again to keep the check afloat. If you had to pay the fees every two weeks for a year, that $350 could cost you $1,605.88 in fees alone! Most people living paycheck to paycheck find it difficult to come up with an extra $350 in a two-week time period. Instead, they struggle to keep paying the fees or get another PDL to pay off the first. This is what is referred to as the “debt spiral” where it becomes virtually impossible to break out of the debt burden.
- What happens if I default on (don’t repay) the loan? Generally, payday lenders report defaults to a subprime credit bureau, so you would have difficulty getting another PDL from another lender. But the lender is not going to give up on collecting the loan. Often the lender will continue to call your financial institution on your payday (remember the lender knows your payday) to see if you have enough money to cover the check. If so, the lender goes directly to the financial institution and presents your post-dated check for payment. If you had plans to pay your rent or other bills with that money, you are out of luck.
What is a Community HOPE Payday Alternative Loan (HOPE PAL)?
To provide credit union members with an alternative to high-cost payday loans, the National Credit Union Administration (NCUA) allows federal credit unions to offer small-dollar loans called payday alternative loans (PAL). These PALs offer significant reduction in cost and relaxed repayment terms that are a fair way to lend money to people who have a short-term cash need, such as medical expenses, auto repairs, or even a sick pet.
The example below compares a HOPE PAL to a payday loan which remains outstanding for 13 two-week periods, (bi-weekly) for six months, before re-payment of the entire payday loan and fees.
Compare a $350 Community HOPE PAL to a PDL:
How do I get a PAL from Community HOPE?
Visit our office at 1625 N Street in Lincoln, or call to make an appointment to meet with a member services representative who will likely do the following:
- Pull a credit bureau report to review with you. The report will tell both Community HOPE and you where credit problems may exist.
- If your credit is sufficient and good enough, HOPE may be able to approve you for a traditional signature loan on the spot to help you through your cash emergency.
- If credit needs to be strengthened, you may still qualify for a PAL if you have been a member for at least 30 days, have a sustainable source of income, or can produce an acceptable co-signer. The parameters for the PAL include:
- Maximum loan amount of $500
- Repayment term up to 180 days with periodic payments
- Maximum APR of 28%. Your rate can be reduced to 18% by attending an approved financial literacy course, keeping the loan current during the term, and deposit the interest rebate paid upon maturity into a Community HOPE share savings account.
You may also qualify for a Credit Builder Loan, which is a loan that goes into a restricted savings account that you can’t access until the loan is paid in full. This enables you to rebuild credit and save for a future need at the same time.
- A Credit Builder Loan does not provide immediate funds for member use. Instead, the funds are secured in a savings account until the loan term is complete.
- You can request an amount between $200 and $2,500 for your Credit Builder Loan. Your loan term can be between six and 36 months.
- Members ask if they can pay off their Credit Builder Loan early. However, regularly scheduled monthly payments are important to building credit. If you secure a Credit Builder Loan, you should plan to make regular payments through the loan’s scheduled completion date.