Some short-term credit union loan rates may be high
— -- You need money, and you need it fast. You've already pawned your saxophone. Friends with money won't return your calls.
One option is to get a payday loan, a short-term loan against your next paycheck. Payday lenders typically don't require a credit check, making them an easy source of quick cash. But annual interest on these loans often runs as high as 400%, and many borrowers who use payday loans to meet a short-term cash crunch end up with long-term debt.
An alternative is a loan from your credit union. In recent years, many credit unions have launched short-term loans for their members. The products were created in response to concerns that many low-income credit union members were relying heavily on payday loans.
Ideally, a credit union loan should offer a low-cost alternative to a payday loan, and many do. But before you sign up, scrutinize the details. Some credit union loans "are only marginally cheaper than traditional payday loans," says Lauren Saunders, an attorney with the National Consumer Law Center. Other credit unions have lent their names to third parties that are offering payday loans, the NCLC says.
The NCLC cited several examples of what it believes are high-cost credit union loans, including:
•Kinecta Federal Credit Union in Manhattan Beach, Calif., claims to offer short-term loans with a 15% annual percentage rate, but charges fees that raise the effective APR to 275%, the NCLC says.
In an e-mail, Kinecta spokeswoman Laura Oberhelman said the credit union's loan is competitively priced and in compliance with federal regulations governing such loans. In many cases, Oberhelman said, a short-term loan is less costly than paying overdraft fees on a checking account or re-establishing service with a utilities provider.
Kinecta also offers borrowers a free savings account in an effort to wean them from payday lending, Oberhelman said.
•The GoodMoney loan developed by Prospera Credit Union of Appleton, Wis., charges a fee of $9.90 per $100 for a 14-day loan, which works out to an annual APR of 252%, the NCLC said.
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