By Paul Woodruff, Prosperity Connection
Everyone in St. Louis seems to have an opinion on payday lending. Politicians decry the industry as usurious. Consumer advocates demand that ‘predatory lenders’ be shut down. Middle and higher-income people don’t understand why the loans cost so much, or why anyone would take one out. Meanwhile, the consumers who use these services just want access to a short-term loan so they can pay rent, repair their car, keep the lights on, and more. Presently, payday lenders fill that need and are accessible.
Many people are struggling to get by. According to the 2018 Prosperity Now Scorecard, despite nationwide low unemployment rates, nearly a quarter of all jobs in America are low-wage. Add to that the fact that 45.8% of white renters and 53.9% of renters of color are cost-burdened (meaning they spend more than 30% of their income on housing). For those living on a fixed income, primarily seniors and the disabled, the picture is increasingly bleak as their benefits remain flat and the underpinnings of state and federal safety nets continue to fray.
Community Development Financial Institutions (CDFIs) and nonprofit loan funds operate in our area to offer consumers small-dollar loans ($100 – $1,000) at more affordable rates and the opportunity to engage with financial experts who can provide free guidance on how to build credit, eliminate debt, and manage household finances. CDFIs like Justine PETERSEN and St. Louis Community Credit Union (SLCCU) give consumers a pathway to financial wellbeing through a host of affordable opportunities. Prosperity Connection, a nonprofit, established RedDough Money Center in 2016 to compete directly against payday lenders by offering lower cost small-dollar loans, check cashing services, and more.
A growing number of financial institutions, both banks and credit unions, offer small-dollar loans which are more affordable than traditional payday and title lenders. If you are facing a difficult financial situation and are in need of a small loan, here are some things to keep in mind:
• Ask your financial institution what small-dollar loan options they offer (if they don’t have any, they may have partners to refer you to)
• Before taking out any loan, know what you’re getting into by asking questions.
o What is the interest rate?
o How long do I have to pay the loan back and how much will it cost?
o Are there any fees for paying the loan off early?
• Consider meeting with a financial coach to establish financial goals, build a strategy to meet goals, and navigate difficult financial situations when they arise.
Payday lenders don’t have to be your only option when a financial emergency arises. Ask questions, use the resources available to you, and take control of your finances.