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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