Financial Reality Fairs Give Teens a Taste of Making Ends Meet

High school students are getting a financial reality check.

A recent wave of credit union-hosted fairs are popping up in gyms across the country to teach teenagers about budgeting, handling a checking account and the value of a dollar. At these events, students take on roles designed to simulate what it’s like to live within your means and make money decisions.

Often called reality fairs, they’re typically put on for specific schools, but some are open to the general public. Credit unions organize the events individually or through larger programs such as the Credit Union National Association’s Mad City Money, America’s Credit Union Museum’s CU 4 Reality and Connecticut Financial Reality Fairs. Each organization runs the events its own way, but the overall goals are similar: teach kids financial literacy.

Learning by doing

In Connecticut, students start the day at the fair by getting a random credit score, a credit card with a balance and spending limit, a checking account and a budget with taxes and student loan payments deducted. Each has chosen a career ahead of time and gets a realistic salary to match.

Across the country at Redwood Credit Union’s “Bite of Reality” fairs in California wine country, students take on personas such as being a police officer who takes home $2,358 a month and is married to a landscaper bringing in $2,100. The couple has a 4-year-old named Juan. The officer has $2,109 in credit card debt, owes $100 a month on student loans and pays $100 a month for a family medical insurance policy.

Students spend two hours visiting various booths to spend their income on necessities like housing, food, transportation, clothing and more. Some optional stations, such as the pet and shopping booths, are designed to tempt them with items they might buy on impulse.

Five TVs

One Connecticut teen bought five big-screen televisions, including one for each of the four bedrooms in his fictional house, says Fred Brown, a financial reality fair organizer and the president of the Hartford chapter of the Credit Union League of Connecticut.

After spending their fantasy income, students try to balance their household budgets. Then they review their experience with a financial counselor. After a fair concludes, Brown says he hears these common reactions from students: “I can’t believe it costs this much,” and, “I didn’t know insurance was that expensive.”

At Bite of Reality fairs in California, teens can backtrack and correct purchasing mistakes, such as laying out big amounts for a five-bedroom mansion, a sports car or a trip to London, after consulting the credit union booth for advice.

“In the real world, you don’t just get to return your house, but here they do,” says Lee Alderman, the assistant vice president of training and financial literacy at Santa Rosa-based Redwood Credit Union. “It’s a conversation. It’s not us lecturing them.”

Building financial literacy

About 39% of U.S. adults say they budget and keep track of their spending, according to the 2014 Consumer Financial Literacy survey. The fairs are part of a larger attempt by credit unions to boost that number by teaching kids basic financial literacy. The participants don’t always get that education at school or at home.

A third of parents would rather talk to their kids about smoking, drugs and bullying before money, and only 17 states, including Texas, Florida and New Jersey, require personal finance classes in high school, according to a 2014 Council for Economic Education survey.

“I don’t think many students get this type of reality check,” says Anthy O’Brien, a Bite of Reality volunteer at San Marin High School in Novato, California. “I wish my kids could have had it. It would have sparked questions.”

At least 1,050 financial reality fairs have been held nationwide with about 104,000 participants since 2010, the National Credit Union Foundation estimates. The group is working to make the fairs more widely available.

“Hopefully any kid in high school can have an opportunity to go to a reality fair and get this experiential learning about what it costs to be an adult and what it costs once you get out of school,” says Gigi Hyland, the foundation’s executive director.

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Stretching a dollar illustration via Shutterstock.

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Financial Reality Fairs Give Teens a Taste of Making Ends Meet

High school students are getting a financial reality check.

A recent wave of credit union-hosted fairs are popping up in gyms across the country to teach teenagers about budgeting, handling a checking account and the value of a dollar. At these events, students take on roles designed to simulate what it’s like to live within your means and make money decisions.

Often called reality fairs, they’re typically put on for specific schools, but some are open to the general public. Credit unions organize the events individually or through larger programs such as the Credit Union National Association’s Mad City Money, America’s Credit Union Museum’s CU 4 Reality and Connecticut Financial Reality Fairs. Each organization runs the events its own way, but the overall goals are similar: teach kids financial literacy.

Learning by doing

In Connecticut, students start the day at the fair by getting a random credit score, a credit card with a balance and spending limit, a checking account and a budget with taxes and student loan payments deducted. Each has chosen a career ahead of time and gets a realistic salary to match.

Across the country at Redwood Credit Union’s “Bite of Reality” fairs in California wine country, students take on personas such as being a police officer who takes home $2,358 a month and is married to a landscaper bringing in $2,100. The couple has a 4-year-old named Juan. The officer has $2,109 in credit card debt, owes $100 a month on student loans and pays $100 a month for a family medical insurance policy.

Students spend two hours visiting various booths to spend their income on necessities like housing, food, transportation, clothing and more. Some optional stations, such as the pet and shopping booths, are designed to tempt them with items they might buy on impulse.

Five TVs

One Connecticut teen bought five big-screen televisions, including one for each of the four bedrooms in his fictional house, says Fred Brown, a financial reality fair organizer and the president of the Hartford chapter of the Credit Union League of Connecticut.

After spending their fantasy income, students try to balance their household budgets. Then they review their experience with a financial counselor. After a fair concludes, Brown says he hears these common reactions from students: “I can’t believe it costs this much,” and, “I didn’t know insurance was that expensive.”

At Bite of Reality fairs in California, teens can backtrack and correct purchasing mistakes, such as laying out big amounts for a five-bedroom mansion, a sports car or a trip to London, after consulting the credit union booth for advice.

“In the real world, you don’t just get to return your house, but here they do,” says Lee Alderman, the assistant vice president of training and financial literacy at Santa Rosa-based Redwood Credit Union. “It’s a conversation. It’s not us lecturing them.”

Building financial literacy

About 39% of U.S. adults say they budget and keep track of their spending, according to the 2014 Consumer Financial Literacy survey. The fairs are part of a larger attempt by credit unions to boost that number by teaching kids basic financial literacy. The participants don’t always get that education at school or at home.

A third of parents would rather talk to their kids about smoking, drugs and bullying before money, and only 17 states, including Texas, Florida and New Jersey, require personal finance classes in high school, according to a 2014 Council for Economic Education survey.

“I don’t think many students get this type of reality check,” says Anthy O’Brien, a Bite of Reality volunteer at San Marin High School in Novato, California. “I wish my kids could have had it. It would have sparked questions.”

At least 1,050 financial reality fairs have been held nationwide with about 104,000 participants since 2010, the National Credit Union Foundation estimates. The group is working to make the fairs more widely available.

“Hopefully any kid in high school can have an opportunity to go to a reality fair and get this experiential learning about what it costs to be an adult and what it costs once you get out of school,” says Gigi Hyland, the foundation’s executive director.

---

Stretching a dollar illustration via Shutterstock.

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Prepaid Debit Cards May Face New Consumer Bureau Rules

If you use a prepaid debit card, here’s a heads up: Your plastic may soon come under new rules from the Consumer Financial Protection Bureau, which is expected to release its proposal Nov. 13, according to recent reports.

Regulations may affect overdrafts and require clearer disclosures from card issuers regarding what their products cost you to use, according to reports from Bloomberg News and the Wall Street Journal. Consumer use of prepaid debit cards that can be reloaded with funds has ballooned from virtually zero to 7.5% of all payments in the U.S. in 2012, according to Moebs Services, a researcher in Lake Bluff, Illinois. Reloadable cards are particularly popular with younger Americans, studies show.

The consumer bureau said the number of prepaid cards in use doubled to more than 7 million this year from 3.4 million in 2009, just counting those handled by the two largest program managers. The agency tipped its hand in May with an announcement that it would take a close look at fees, terms and the security provided for users’ funds on prepaid cards. It cited concerns about the fees charged by the “largely unregulated” industry and the consumers it serves.

“The people who use prepaid cards are, in many instances, the most vulnerable among us,” said Richard Cordray, the bureau’s director, in the May announcement. “All consumers need, and deserve, products which are safe and whose costs and risks are clear upfront. Yet right now prepaid cards have far fewer regulatory protections than bank accounts or debit or credit cards.”

Expected rules

Among the proposals expected from the agency are a disclosure format designed to make it easier for you to compare charges and services offered by different card issuers, the Journal said in a Nov. 11 report. It said the rules would also deter overdrafting, though it didn’t say how that might be accomplished, as it noted the bureau lacks the authority to cap fees.

To control overdraft costs, the regulator plans to apply a 2009 credit card reform law to the prepaid industry’s products, Bloomberg News said in October. It said only a few issuers permit overdrafting with their cards. The news service also said the proposals wouldn’t include limits on transaction fees.

In May, the agency listed standardized disclosure that would make it easier to compare different cards’ costs and services among the areas it planned to evaluate. It also cited the way issuers let you know whether your funds are insured against losses, your liability for unauthorized charges and overdraft policies.

Debit card image via Shutterstock

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Prepaid Debit Cards May Face New Consumer Bureau Rules

If you use a prepaid debit card, here’s a heads up: Your plastic may soon come under new rules from the Consumer Financial Protection Bureau, which is expected to release its proposal Nov. 13, according to recent reports.

Regulations may affect overdrafts and require clearer disclosures from card issuers regarding what their products cost you to use, according to reports from Bloomberg News and the Wall Street Journal. Consumer use of prepaid debit cards that can be reloaded with funds has ballooned from virtually zero to 7.5% of all payments in the U.S. in 2012, according to Moebs Services, a researcher in Lake Bluff, Illinois. Reloadable cards are particularly popular with younger Americans, studies show.

The consumer bureau said the number of prepaid cards in use doubled to more than 7 million this year from 3.4 million in 2009, just counting those handled by the two largest program managers. The agency tipped its hand in May with an announcement that it would take a close look at fees, terms and the security provided for users’ funds on prepaid cards. It cited concerns about the fees charged by the “largely unregulated” industry and the consumers it serves.

“The people who use prepaid cards are, in many instances, the most vulnerable among us,” said Richard Cordray, the bureau’s director, in the May announcement. “All consumers need, and deserve, products which are safe and whose costs and risks are clear upfront. Yet right now prepaid cards have far fewer regulatory protections than bank accounts or debit or credit cards.”

Expected rules

Among the proposals expected from the agency are a disclosure format designed to make it easier for you to compare charges and services offered by different card issuers, the Journal said in a Nov. 11 report. It said the rules would also deter overdrafting, though it didn’t say how that might be accomplished, as it noted the bureau lacks the authority to cap fees.

To control overdraft costs, the regulator plans to apply a 2009 credit card reform law to the prepaid industry’s products, Bloomberg News said in October. It said only a few issuers permit overdrafting with their cards. The news service also said the proposals wouldn’t include limits on transaction fees.

In May, the agency listed standardized disclosure that would make it easier to compare different cards’ costs and services among the areas it planned to evaluate. It also cited the way issuers let you know whether your funds are insured against losses, your liability for unauthorized charges and overdraft policies.

Debit card image via Shutterstock

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Business Loan Rates and Fees: 3 Things to You Need to Know

Getting a small business loan may sound like a simple task: Fill out some paperwork, get a lump sum of cash and repay it over time with interest. But like any major financial decision, the process requires a bit of planning and preparation, especially if you want to get the best deal.

By taking some time to understand how small business loans work, you can make a more informed decision for your company. Here are three important things to look for when shopping for a business loan — whether it’s a traditional bank loan, a term loan or another type of financing — including the difference between fixed and variable rate loans and how closing costs, interest rates and fees are calculated.

1. Is the interest rate fixed or variable?

As a borrower, you’ll likely have to choose between a fixed-rate and a variable-rate loan. Before making a decision, it’s wise to carefully weigh the pros and cons of each option so you can get the loan that best fits your needs.

With a fixed-rate loan, your interest rate is locked in, which means you’ll have the same monthly payment over the life of the loan. This can make it much easier for future budgeting, since you won’t have to worry about your payments ever changing.

With variable-rate loans, the interest rate can rise or fall because the rate is tied to an underlying index that fluctuates with the market. This means your payments can vary frequently, sometimes as often as once a month, which makes budgeting more difficult. The potential benefit is variable-rate loans generally come with lower initial interest costs, which may entice some borrowers.

A business line of credit is a variable-rate loan that allows you to borrow money and pay it back continuously, like you would a credit card. You pay no interest until you actually draw funds, and you can pay off the balance in full or over time. This type of loan is likely better suited for business owners who don’t need a set amount of money but need access to cash, whether it’s for emergency funds or short-term working capital.

A business term loan provides you with a lump sum of cash at closing. It often comes with a fixed interest rate and is repaid in monthly installments. This type of loan usually requires collateral, which means an asset like equipment or real estate is used as security for repayment of the loan. If you can’t make the payments, you forfeit the asset. For these reasons, this type of loan is better suited for a one-time expense or long-term financing needs, like funding a major business expansion, purchasing real estate or refinancing debt.

A variable-rate line of credit is likely your best bet if you want to save money on interest costs in the beginning stages of the loan, can handle the risk of higher rates and the potential for fluctuations in your monthly payments and only need cash for short-term needs.

But if you need a specific amount of cash for a large business purchase and are uncomfortable with the possibility of your payments changing often, a fixed-rate loan is likely your best bet.

2. What is the annual percentage rate?

The annual percentage rate (APR) determines your total borrowing cost. It includes not just the interest rate, but also all of the associated loan fees like closing costs and origination fees. In other words, the APR is the all-in cost of your loan.

Let’s say you own a chain of fast-food restaurants and you want to take out a $100,000 loan to open a new location. You get approved for a five-year loan, which carries an interest rate of 6%, plus 2% in total fees, giving the loan an APR of 8%. On this loan, you’ll make 60 monthly payments of $2,028 and pay total interest of $21,658 over the repayment period.

What if you shop around and find the same loan at a lower rate? With an APR two percentage points lower at 6%, your monthly payments would drop nearly $100 to $1,933, with total interest costs falling more than $5,000.

The loan rate you receive will depend on a few factors, including your credit history; the profitability of your business and its financial track record; the total amount you borrow; and the length of the repayment period. It’s a good idea to shop around and compare quotes, because some lenders may offer you much lower rates than others.

Ask the lender what fees are included in the APR, why you’ve been given the rate, whether the rate is fixed or variable, and if there are fees or penalties for repaying the loan early.

All of this information should help you make a better-informed decision as you’ll be able to compare the APR with quotes from other lenders and have a full understanding of your loan.

3. What are the loan fees?

Here are some common fees you may face when taking on a small business loan:

• A borrower origination fee, which is an upfront fee that is charged for processing a new loan.


• Underwriting fees that are collected by underwriters who verify and review all of the information you’ve provided. This helps them decide whether or not to provide you with a loan and determines your interest rate. Underwriters generally examine several documents, including financial statements, personal bank statements, credit reports and tax returns.


• Closing costs, which can include other costs associated with servicing the loan such as a loan-packaging fee, a commercial real estate appraisal or a business valuation.

Keep in mind that loans backed by the U.S. Small Business Administration (SBA) 7(a) loan program work a little differently. Loans under $150,000 come with no fees, while loans between $150,000 to $700,000 with a maturity of more than one year cost 3% and loans greater than $700,000 cost 3.5%, according to the SBA.

Each lender should also be able to give you a list of what each fee includes and should explain any fees that you don’t understand. Don’t be afraid to ask questions.

Unfortunately, fees are unavoidable and can add a significant amount of money to your loan. But this doesn’t mean all small business lenders charge the same amount — some may squeeze more dough out of your pocket than others.

Fees are often quoted as a percentage of the total loan and are generally subtracted from the principal. For example, a $1 million loan with 1% in fees would cost $10,000, with the borrower netting $990,000 in principal at closing but still having to pay back $1 million plus interest.

Total fees can range anywhere from 1% to 5% of the amount financed, although the figure varies by lender and will depend on numerous factors, including the size of the business, the total amount financed, the length of the loan term, the creditworthiness of the borrower and the type of institution offering the loan.

Landing a small business loan with attractive terms can be a daunting task. But by educating and preparing yourself, you’ll be in a much better position to succeed.

---

Small business owner photo via Shutterstock.

The post Business Loan Rates and Fees: 3 Things to You Need to Know appeared first on NerdWallet Credit Card Blog.

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Business Loan Rates and Fees: 3 Things to You Need to Know

Getting a small business loan may sound like a simple task: Fill out some paperwork, get a lump sum of cash and repay it over time with interest. But like any major financial decision, the process requires a bit of planning and preparation, especially if you want to get the best deal.

By taking some time to understand how small business loans work, you can make a more informed decision for your company. Here are three important things to look for when shopping for a business loan — whether it’s a traditional bank loan, a term loan or another type of financing — including the difference between fixed and variable rate loans and how closing costs, interest rates and fees are calculated.

1. Is the interest rate fixed or variable?

As a borrower, you’ll likely have to choose between a fixed-rate and a variable-rate loan. Before making a decision, it’s wise to carefully weigh the pros and cons of each option so you can get the loan that best fits your needs.

With a fixed-rate loan, your interest rate is locked in, which means you’ll have the same monthly payment over the life of the loan. This can make it much easier for future budgeting, since you won’t have to worry about your payments ever changing.

With variable-rate loans, the interest rate can rise or fall because the rate is tied to an underlying index that fluctuates with the market. This means your payments can vary frequently, sometimes as often as once a month, which makes budgeting more difficult. The potential benefit is variable-rate loans generally come with lower initial interest costs, which may entice some borrowers.

A business line of credit is a variable-rate loan that allows you to borrow money and pay it back continuously, like you would a credit card. You pay no interest until you actually draw funds, and you can pay off the balance in full or over time. This type of loan is likely better suited for business owners who don’t need a set amount of money but need access to cash, whether it’s for emergency funds or short-term working capital.

A business term loan provides you with a lump sum of cash at closing. It often comes with a fixed interest rate and is repaid in monthly installments. This type of loan usually requires collateral, which means an asset like equipment or real estate is used as security for repayment of the loan. If you can’t make the payments, you forfeit the asset. For these reasons, this type of loan is better suited for a one-time expense or long-term financing needs, like funding a major business expansion, purchasing real estate or refinancing debt.

A variable-rate line of credit is likely your best bet if you want to save money on interest costs in the beginning stages of the loan, can handle the risk of higher rates and the potential for fluctuations in your monthly payments and only need cash for short-term needs.

But if you need a specific amount of cash for a large business purchase and are uncomfortable with the possibility of your payments changing often, a fixed-rate loan is likely your best bet.

2. What is the annual percentage rate?

The annual percentage rate (APR) determines your total borrowing cost. It includes not just the interest rate, but also all of the associated loan fees like closing costs and origination fees. In other words, the APR is the all-in cost of your loan.

Let’s say you own a chain of fast-food restaurants and you want to take out a $100,000 loan to open a new location. You get approved for a five-year loan, which carries an interest rate of 6%, plus 2% in total fees, giving the loan an APR of 8%. On this loan, you’ll make 60 monthly payments of $2,028 and pay total interest of $21,658 over the repayment period.

What if you shop around and find the same loan at a lower rate? With an APR two percentage points lower at 6%, your monthly payments would drop nearly $100 to $1,933, with total interest costs falling more than $5,000.

The loan rate you receive will depend on a few factors, including your credit history; the profitability of your business and its financial track record; the total amount you borrow; and the length of the repayment period. It’s a good idea to shop around and compare quotes, because some lenders may offer you much lower rates than others.

Ask the lender what fees are included in the APR, why you’ve been given the rate, whether the rate is fixed or variable, and if there are fees or penalties for repaying the loan early.

All of this information should help you make a better-informed decision as you’ll be able to compare the APR with quotes from other lenders and have a full understanding of your loan.

3. What are the loan fees?

Here are some common fees you may face when taking on a small business loan:

• A borrower origination fee, which is an upfront fee that is charged for processing a new loan.


• Underwriting fees that are collected by underwriters who verify and review all of the information you’ve provided. This helps them decide whether or not to provide you with a loan and determines your interest rate. Underwriters generally examine several documents, including financial statements, personal bank statements, credit reports and tax returns.


• Closing costs, which can include other costs associated with servicing the loan such as a loan-packaging fee, a commercial real estate appraisal or a business valuation.

Keep in mind that loans backed by the U.S. Small Business Administration (SBA) 7(a) loan program work a little differently. Loans under $150,000 come with no fees, while loans between $150,000 to $700,000 with a maturity of more than one year cost 3% and loans greater than $700,000 cost 3.5%, according to the SBA.

Each lender should also be able to give you a list of what each fee includes and should explain any fees that you don’t understand. Don’t be afraid to ask questions.

Unfortunately, fees are unavoidable and can add a significant amount of money to your loan. But this doesn’t mean all small business lenders charge the same amount — some may squeeze more dough out of your pocket than others.

Fees are often quoted as a percentage of the total loan and are generally subtracted from the principal. For example, a $1 million loan with 1% in fees would cost $10,000, with the borrower netting $990,000 in principal at closing but still having to pay back $1 million plus interest.

Total fees can range anywhere from 1% to 5% of the amount financed, although the figure varies by lender and will depend on numerous factors, including the size of the business, the total amount financed, the length of the loan term, the creditworthiness of the borrower and the type of institution offering the loan.

Landing a small business loan with attractive terms can be a daunting task. But by educating and preparing yourself, you’ll be in a much better position to succeed.

---

Small business owner photo via Shutterstock.

The post Business Loan Rates and Fees: 3 Things to You Need to Know appeared first on NerdWallet Credit Card Blog.

Source Article :http://bit.ly/1ugwKFi

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Manhattan Credit Union Helps Rescue Members From Loan Sharks

When he needed money, the Manhattan cook went from bank to bank, applying for loans as small as $500—but no one would lend to him because he didn’t have collateral to secure the debt.

“What I used to tell them is, if I had property, I wouldn’t be asking you for a loan,” said the 45-year-old, who spoke through an interpreter about his financial struggles and asked to remain anonymous. “Unfortunately, they would tell me, that’s how banks work. If you don’t have anything, we can’t lend you anything.”

The cook lives in the city with his wife and three children and also supports his mother, who remains in Mexico, the country he left 18 years ago. When his mom became ill not long ago and her costs rose, it became difficult for him to pay all his bills. Desperate, he turned to a loan shark for an infusion of $5,000. The loan shark charged 20% interest each month, the equivalent of 240% a year.

At such a high rate, he could only afford to cover the interest and periodically roll over the debt into a new loan.

Refinance rescue

While attending an English class at a community center, he found out about a loan shark refinance product offered by Neighborhood Trust Federal Credit Union in the city’s Washington Heights section. Through the nonprofit lender, he paid off the $5,000 loan as well as some additional credit card debt by borrowing the needed amounts at a 15% annual rate.

Now he makes monthly payments of $350 to the credit union, less than half what he was paying the prestamista, as this sort of predatory lender is known in Spanish. He’s also putting 2% of his earnings into a savings account while working to pay off the three-year credit union loan.

Charging more than 16% interest on a loan by an unlicensed lender is illegal under New York’s usury law. Even state-licensed lenders can’t charge more than 25% on debts of less than $2.5 million, according to the state Department of Financial Services. But that hasn’t completely eliminated high-rate, short-term loans made to residents by local lenders and over the Internet.

While there are no licensed payday lenders in the state, a quick search on Google Maps shows at least one doing business from a lower Manhattan office and advertising annual rates of over 500%. A 2014 survey of over 33,000 people nationwide shows that about 3% of New Yorkers use payday loans, according to the Pew Charitable Trusts in Washington. And then there are loan sharks.

For people who speak little or no English, don’t have regular work or face other challenges, getting credit or a loan to deal with an emergency can be difficult or impossible. That creates demand for the services of loan sharks and other alternative lenders, even if they are incredibly expensive.

High-priced help

Because of the high cost, most borrowers who go through these lenders can only afford to pay the interest and fees, and usually have to put off paying down the principal. So they typically “roll over” the loans. More than four out of five payday loans are rolled over at least once, and half are extended this way 10 times, with fresh fees charged each time, according to a 2014 Consumer Financial Protection Bureau study.

“People don’t understand,” says Rosa Franco, Neighborhood Trust’s director of lending. “This is short-term thinking.”

In 2011, the credit union started offering its loan shark refinance product to help people get out of debt. It focuses primarily on helping people with decent credit scores who turned to alternative lenders out of desperation. Under the program, clients can borrow up to $10,000 at a 15% annual rate to consolidate their debts.

As an example, Franco says a member seeking to refinance $6,000 in debts would initially be given $1,500 to start paying off that principal. Under the terms of the refinancing, the borrower agrees to put 10% of the savings from payments to the lender into a savings account to establish an emergency fund.

Rewarding good behavior

The borrower could also see a financial adviser at a nonprofit affiliate, Neighborhood Trust Financial Partners, or attend personal finance classes. If the contributions to the savings account are kept up as agreed, the credit union lends more money. Eventually, the original principal will be paid off and the borrower will only be making debt payments to the credit union while building an emergency fund.

Oftentimes, not-for-profit credit unions, which are member-controlled, are more willing than other financial institutions to work with people—even those with poor credit—because their structure gives them more flexibility. Still, programs specifically designed for those trying to refinance high-interest, short-term debts are uncommon. Some borrowers turn to online payday-loan consolidation websites, but those are often as unregulated and costly as payday lenders themselves.

The credit union had about 3,500 members and assets of almost $9 million at the end of last year. Even though it’s lending to a population generally seen as higher risk, borrowers have proven to be good bets.

Conscientious borrowers

“So far the delinquency is nonexistent,” says Franco—fewer than 1% have failed to meet their obligations under the program, she says. “They know that if something happens in the future, they don’t want to close the door on an organization that has helped them in the past.”

Even though the program has a high success rate, it also has its challenges. Because weekly payments are required, employees have to monitor the activity at the same pace, and the workload can be overwhelming.

For the Manhattan cook, Neighborhood Trust has helped ease a crisis that led to sleepless nights and a feeling of desperation. Today, he’s working two jobs and aims to make good on his obligations.

“Because they gave me a chance, I’m going to try to pay it off faster, so that they can keep trusting me,” he says. He’s also taking classes on money management and on starting a small business.

“Now I have much more confidence and I feel like advancing myself and putting more effort into it,” he says. “Because if somebody has faith in you, that gives you faith in yourself.”

Setting an example

Neighborhood Trust’s success with a program that defies conventional lending wisdom begs the question: Could other lenders replicate what it has done?

“I’m not sure how many financial institutions are willing to look beyond the numbers,” Franco says. She notes that loan applicants must be assessed more holistically, including examination of their payment histories, measures they’ve taken to improve their finances and the state of their credit scores.

When banks only consider credit scores, many people can fall through the cracks. Building personal relationships is key to the program’s success, Franco says.

“It says something about loyalty,” she says. “It says something about thinking about the future.”

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Shark in the water image via Shutterstock.

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