These toxic loans are made to people who can’t quite meet their monthly expenses and need a little extra influx of cash until the next payday. But typical payday loans can have an APR of 400% or more!
Thankfully, now there’s a better alternative emerging from the financial tech sector.
Read more: Google bans ads for payday loans
LendUp to the rescue
San Francisco-based LendUp has a new idea: A credit card for subprime borrowers with an annual fee of $60 that offers interest rates of between 19% and 29%.
The L Card is currently accepting applications on a limited basis. You can enter your email at their site to join the waitlist.
Credit lines will typically range from $300 to $1,000.
Another nice feature of the L Card? LendUp will report to all the credit bureaus so you’ll build credit as you repay the money — at the same time that you’re benefiting from a phenomenally lower interest rate vs. what you could get with a payday lender!
This really is a viable option for cash-strapped consumers to get access to the short-term money they need at rates that are affordable and to build credit at the same time.
A third alternative to secured cards and ‘fresh start’ programs
From the perspective of building credit, the L Card offers another alternative to secured cards and ‘fresh start’ programs.
With a secured card, you put money on deposit with a credit union or bank and they use that as collateral for the card. You can only charge up as much as you have on deposit. Your timely payments are reported to the credit bureaus typically 12 to 18 months after you open the line of credit. It’s around that time that you can also convert to a real credit card through the issuing credit union or bank.
‘Fresh start’ programs, meanwhile, are an informal name for any of a number of initiatives at credit unions that are geared toward people who have never had credit before. Like with a secured card, the ‘fresh start’ program will have you put money on deposit with the credit union. Then the credit union will write you a small loan or issue you a Visa or MasterCard with a small limit against the money you put in savings. But unlike a secured card, the credit card from a ‘fresh start’ program reports as regular credit from day one.