Home Fico score An alternative to payday loans, but it’s still a high cost

An alternative to payday loans, but it’s still a high cost

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The reaction to the new loans has been mixed. Nick Bourke, director of consumer credit at Pew Charitable Trusts, which supports making small, affordable loans available to consumers with appropriate collateral, said the new loan looked promising. When the loan scheme was announced, he tweeted that it was a game changer. Pew opposes payday loans, but has called on traditional banks to offer smaller, less risky loans to help consumers when they run into financial difficulties. U.S. bank loans include some features recommended by Pew, Bourke said, such as limiting loan repayments to 5% of the borrower’s monthly income and avoiding overdraft fees.

Although the loans are relatively expensive, they are much less expensive than alternatives like payday loans or auto title loans.

“It’s a great first step,” Bourke said.

According to Pew research, 12 million people a year take out payday loans. If borrowers cannot make the payment, they often pay additional fees to renew the loan. Payday borrowers, according to Pew, spend an average of $520 in fees to repeatedly borrow $375.

New US Bank loans cost $12 for every $100 borrowed, when payments are automatically debited from the customer’s account. The fee is $15 per $100 if a customer declines automatic payments.

“This is a high cost loan,” Ms Heitman acknowledged, adding that the bank was “transparent” about the fees. The bank has received very positive feedback from customers, she said, who say they find the loan terms easy to understand.

The Center for Responsible Lending, an advocacy group, was skeptical of the value of US Bank’s offer, saying loans are still too expensive for most low-income people, many of whom are already overwhelmed by debts and have little room for maneuver to assume Suite.

“It’s a step in the wrong direction,” said Rebecca Borné, the center’s senior policy adviser.

And while the bank won’t let the customer’s checking account be overdrawn by a loan payment, she said, the payment itself could drive the account balance so low that subsequent bills would result in overdrafts. .