Low income and no credit loans.

More banks are offering small loans to low- and moderate-income borrowers through a program sponsored by the federal government FDIC. There are also funds issued by non-profit organizations which are also listed below. The programs show how banks as well as other lenders can profitably offer affordable, low interest rate loans to families as an alternative to high-cost credit products. It was intended to provide borrowers a more affordable option rather than using payday lenders, high interest rate personal loans, and fee-based overdraft protection.

The various programs are tailored towards the high number of people in low-income ranges that need small-dollar loans to help them deal with a hardship. They also help serve individuals who do not even have a checking or savings account. The money can be used to pay for bills, education, to start a businesses, or other expenses. If they meet certain criteria that are set by the government and their lender, then they can get a loan.

Government supported loans for low income families

When it comes to the government loans, there are 31 banks in 26 states offering the product from the FDIC, including institutions in Texas, Illinois, and Louisiana. Other lenders may also provide these loans over time. Find a listing of the banks below.

 

 

 

The lenders are offering short-term, small-dollar, low interest loans of under $2,500 to low-income Americans, many of whom that apply have poor or no credit scores. The Federal Deposit Insurance Corporation (FDIC) product can be an important source of funding to those that need access to financing. The government can help low borrowers with no credit score or assist families living in poverty

The primary goal of the FDIC as well as the regional non-profits is to assist the estimated 80 million to 100 million so called under-banked Americans avoid overdraft programs or payday loans. It can be an affordable source of credit to these groups. They want these Americans to stop using products that may provide them with quick cash, but carry very high fees or triple-digit interest rates.

 

 

 

 

According to the FDIC, the goal is to show low and moderate income Americans that there is a much less expensive alternative to high priced payday loans. This program can also assist consumers that either have no credit history or that have poor scores. It can also benefit lenders by bringing them new business in the form of customers seeking an affordable source of money.

How much can I borrow at what rate?

Banks, non-profits and institutions that are part of the FDIC program offer small-dollar loans to customers of under $2,500 or less. The average term is nine months, however they can be extended if and when needed. The interest rate will usually range from 14% to 18% on an annual percentage rate, which is an interest a rate significantly lower than what individuals pay on payday loans or when they over draft their accounts. The terms and conditions of loans from non-profits for people with no-credit will often be similar to that.

Another benefit to these resources, rather from the federal government or another agency, is that they sponsor low cost, low income loans for a diverse range of people. Then when consumers take on these small-dollar products and pay it back on time, they will improve their credit scores and ratings. This will allow individuals to re-enter the mainstream lending market over time. Compare that to a payday loan, in which there is no benefit to your credit score even if you pay it back on time. So the FDIC is providing a way for people to build or repair their credit scores.

What is an overdraft fee?

Banks make billions of dollars from people in so called overdraft fees. With this type of overdraft protection that most people have, consumers can overdraw their savings or checking accounts and banks will cover the transaction with fees as large as $35 for each overdraft charge. This will be billed to the consumer regardless of the size of the draw or how much over their limit they went.

 

 

 

According to the FDIC's, a large percentage of bank profits are from overdraft fees, in total about $35 billion in annual fees for the whole industry. Many borrowers who turn to these options have poor credit rating, and they out of options and they do this as a type of short-term loan because they can't cover their basic living expenses. So they take out more money using these overdraft fees to help pay their bills.

In effect, overdrafts are a line of credit or type of short term loan that people are using to just pay their everyday bills. They should be avoided at all costs. So using a non-profit or FDIC backed program can help consumers avoid these types of charges as well. Find how to settle debts and overdraft fees.

How does this small dollar and low income loan compare to high interest payday loans?

There are over 23,000 payday lender outlets across the country, and all together they make up the $70 billion payday-loan market. Unfortunately what all too often happens is that low and moderate income individuals, and other who may be struggling, turn to one or more of these payday lenders. There are also many cases in which immigrants or even active military personnel turn to this type of financing. While they can get money, the lenders will provide them with this cash for a large fee.

As an example, a consumer can sometimes write a check to a payday loan lender for $300 to receive a two-week salary advance. These loans generally need to be paid back when the borrower receives their next paycheck. What the $300 covers is the following. It breaks down into a $45 fee for the lender and a $255 loan for the borrowers, which the borrower must repay when he gets his work payment. The bottom line is that equals a 460% annual percentage rate fee for the payday loan.

Unfortunately what typically happens in these cases is that the consumer pays off the short term payday loan by taking out another payday loan, and they end up paying another $45 fee. This can create the dreaded cycle that can be hard to break. The industry calls this rolling over the loan, and the consumer can pay hundreds or thousands of dollars in fees.

 

 

 

 

The fees for these salary advance loans from payday lenders are significantly higher fees than what banks under the FDIC small-dollar program charge for their loans. The costs are also much higher than what a non-profit would charge for using a low income, no credit loan. Most of the lenders charge a fairly small origination fee and interest rate that when combined, equate to about a 36% APR annual interest rate.

Banks participate in the small dollar loan program

The list of banks and financial institutions that participate in the government program includes the following. If your lender is not listed you can still inquire with them if they offer this FDIC product. Or another option is to just ask a lender in your community, including local credit unions, even they provide lower income borrowers any access to more affordable loans. Hundreds of national and regional companies try to provide some form of financing to anyone that needs it.

Small-Dollar Loan Pilot Program Participants

 

Amarillo National Bank  Amarillo, TX

Armed Forces Bank  Fort Leavenworth, KS 

Bank of Commerce  Stilwell, OK 

BankFive  Fall River, MA 

BBVA Bancomer USA  Diamond Bar, CA

Benton State Bank  Benton, WI 

Citizens Trust Bank  Atlanta, GA 

Community Bank of Marshall  Marshall, MO

Community Bank - Wheaton/Glen Ellyn  Glen Ellyn, IL 

The First National Bank of Fairfax  Fairfax, MN

First United Bank  Crete, IL 

Kentucky Bank  Paris, KY

Lake Forest Bank & Trust  Lake Forest, IL

Liberty Bank  New Orleans, LA

Liberty National Bank  Paris, TX 

Mitchell Bank  Milwaukee, WI 

National Bank of Kansas City  Kansas City, MO 

Oklahoma State Bank  Guthrie, OK 

Pinnacle Bank  Lincoln, NE 

Red River Bank  Alexandria, LA 

State Bank of Alcester  Alcester, SD

State Bank of Countryside  Countryside, IL

The Heritage Bank  Hinesville, GA

The Savings Bank  Wakefield, MA

Washington Savings Bank  Lowell, MA

Webster Five Cents Savings Bank  Webster, MA

White Rock Bank  Cannon Falls, MN 

Wilmington Trust  Wilmington, DE 

 

 

 

 

If there is not a lender near you, then credit unions can be an alternative. Many of these non-profits also have information on loan programs that can help low income families or that can assist those borrowers with limited or no credit scores. A source of referrals is the National Credit Union Administration, and find a location here http://mapping.ncua.gov

The agency has information on lenders that may offer FDIC approved products, low cost loans, and other forms of financial support. NCUA is involved in coordinating services as well as assistance programs nationwide, and all products provided meet FDIC as well as other federal government guidelines. One product available locally is known as PALS, or Credit Union Payday Alternative Loans and Savings. It combines financial literacy and gives families the ability to borrow money at a low interest rate. The program is for people that lack credit or have poor scores from one of the rating bureaus. More on loans from PALS.

Non-profit lenders for borrowers with no credit

While it is possible to receive a low interest loan from a non-profit or charity organization, they are hard to get and the funds will come with restrictions. Most of the agencies will require the borrower to undergo extensive financial counseling. As one of the key goals is to improve the individual’s overall financial literacy and to get them back into the mainstream banking system. So this is generally required before any low interest rate loan is issued.

In addition, these loans will be for a crisis only. Maybe it can provide some money for a short period of time while the applicant is waiting on a first paycheck or a government benefit check. Or maybe a non-profit will help with an emergency bill, such as rent to stop an eviction or a car repair so the borrower can keep their job. The uses of no-credit loans from a non-profit will be restricted. Some of the primary programs are as follows.

Job seekers can contact Way for Work. The non-profit offers low income borrowers with little or poor credit access to a loan for transportation reasons. The funds can help pay for a used car or repairs so the borrower can either get to work, or keep an existing job. Read how Ways to Work loans can benefit someone that needs transportation.

Religious organizations, including churches, can sometimes provide a loan to a household with poor credit. These programs often assist the vulnerable, including immigrants, refugees, Spanish speakers, and the working poor that are starting a new job. The funds will come with a competitive interest rare, and read more loans from churches.

The FDIC also works with state as well as local non-profits to offer no credit loans to the disabled. These individuals, due to the fact they often live on a fixed, limited income, often are not in the mainstream lending industry. Or they have either no credit or very low scores. But they too can benefit, and apply for disability loans.

As noted, a key objective is to stop individuals with no access to credit from turning to payday companies. Case managers at a non-profit realize when someone goes down that path it can often lead to a vicious cycle, and then maybe bankruptcy. So these loans and the advice given with them can help borrowers find an alternative to using payday lenders.

Borrowers with poor credit histories can also look into free loan programs. These are available from a small subset of non-profit organizations. Generally the money is issued only for paying certain bills or covering some needs. But they can be an option for low income borrowers, and find more information on free loans.

 

 

 

 

Credit score is key

If someone takes out a salary advance loan from a payday lender, the fees and interest they will pay back over time does not benefit them. Any money they pay back to the payday lenders and banks for overdraft protection do not help build or improve their credit scores or ratings. In today’s day and age, a failure to build, or at least improve, a credit score limits low-income individuals' ability to advance economically. It can prevent them from even getting a job in certain cases. Find other ways to improve your credit rating.

More banks that offer these small dollar loans have started to set up offices in low- and moderate-income neighborhoods and districts, where foot-traffic will drive more customers. In addition, the FDIC said that many participating banks and lenders are working with non-profit institutions, charities, and community organizations and agencies to help identify potential borrowers who might benefit from these source of affordable loans and they are encouraging them to apply.

 

 

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