With larger-than-normal APRs, short-term credit can look a lot like a cash grab by credit unions. However, especially for credit unions, small-dollar loan programs exist to serve members in need.
Measuring the member impact of a credit union small-dollar loan program varies per credit union. However, there are a few things that remain relatively consistent across all communities. In this blog, we’ll look into what small, quick loans mean for a credit union’s members.
Who Needs These Things, Anyway?
The grim truth of the American economy is that more than half of workers live check-to-check and almost half can’t afford a $400 emergency. Those numbers don’t necessarily decrease amongst credit union members.
Credit unions serve a large percentage of American workers who don’t have financial stability. Those people are one emergency or blown head gasket away from needing a short-term loan themselves.
When Check-to-Check Doesn’t Work
Living check-to-check means that your income matches your expense almost exactly. It doesn’t necessarily mean that someone can’t save, but it does mean that they can’t save much.
It’s a precarious financial position to be in, though. Unfortunately, many credit unions members fit this profile. It doesn’t take much to throw off a check-to-check situation:
- Car trouble
- Loss of income from illness
- Transitioning to a new job
- Medical bills
- Moving costs
Little things pop up, and they always cost money. When living check-to-check can’t pay the bills, members have to look for short-term financial assistance.
The Industry Exists for a Reason
It’s not just faceless, nameless Americans who need help. It’s also your credit union members, many of whom may already rely on payday lenders to make ends meet.
Members who don’t have a safety net and low- and middle-income members are most at risk. For them, in a crisis, small-dollar loans aren’t an option—they’re a necessity.
Credit union small-dollar loan programs are about providing member assistance and service where needed. If credit unions don’t provide them, their members may still find them from more usurious sources.
What Is the Member Impact of Credit Union Small-Dollar Loan Programs?
The truth is this: small-dollar loan programs are not glamorous the way that mortgages are. They’re not financing houses, automobiles, or business start-up costs.
Credit union small-dollar loans pay rent, medical bills, and car mechanics. They pay for hotels when a flood devastates houses. Generally, small-dollar loans help people maintain their lives rather than enhance them.
The member impact of small-dollar loans is a net positive. They won’t affect your members that don’t use them or would never need them. They will provide a tangible safety net to those for whom a surprise bill could mean missing rent or going hungry.
Testing the Waters in the Market
Credit unions who are curious about the viability of small-dollar lending should do their due diligence. It can be a crucial member service if properly offered. However, there are some risks involved[, as well as potential brand implications.
If you’re curious about how a small-dollar loan program might fit into your credit union’s strategy, follow the links below. Or, if you’d like to see how small loans can help members in emergencies, download our Member Crisis Guide.