Ever heard the expression “more month than money?”
For a lot of Americans, it’s more than a euphemism for running low on funds and not being able to pay their bills — it’s a way of life.
This underserved population has traditionally been all but ignored by the financial establishment, leaving them to turn to payday lenders to borrow short-term money at exorbitant interest rates.
But now U.S. Bank is trying to do something about it…
RELATED: Ask Clark: Should I get a personal loan?
Check out these alternatives to payday loans
U.S. Bank’s new Simple Loan product has been rolled out to little fanfare other than a few articles in the business sections of major metro newspapers. But the product could fill a need for a segment of Americans who routinely have trouble coming up with money when they’re hit with sudden expenses like a medical bill or a car repair.
Simple Loan offers cash disbursements ranging from $100 to $1,000 that must be paid back in three installments over three months.
There are no late fees or prepayment fees and the money is available on fairly reasonable terms — considering customers could wind up paying hundreds of percent in interest if they go to traditional payday lenders.
Here’s how Simple Loan works: For every $100 borrowed, there’s a $12 fee per installment payment if you set up auto-debit from your U.S. Bank consumer checking account to make your three payments. If you prefer to do manual payments, you pay a $15 fee each time.
So here’s a real-world example the bank offers on its website:
Borrowing money at 70% may not seem like a good deal, but consider the alternatives available from traditional payday lenders.
“Payday loans that you obtain from an online lender or from a storefront operation routinely have interest rates of 300%, 400% or 600%,” money expert Clark Howard says. “If you are pinched, and can’t keep the lights on or put food on the table, know that payday lenders lurk waiting to exploit you.”
The reality is that some 12 million Americans take out high-cost payday loans each year and pay $9 billion in loan fees, according to the Pew Research Center.
So what are the alternatives?
Other than this new product from U.S. Bank, a short-term loan from a credit union might have an interest rate of 18%, Clark notes. And while that’s much higher than you’d normally get from a credit union, it’s laughably low compared to the payday lenders.
So, first things first, consider joining a credit union if you’re not already a member of one and you routinely have a “more month than money” kind of lifestyle. You can locate a credit union near you at ASmarterChoice.org.
As another alternative, it may also be possible to talk to your employer and get an advance on your next paycheck. Some major employers like Walmart now allow workers to collect their pay in real time.
Of course, the bigger discussion here is why so many millions of Americans can’t make their bills each month.
If you’re struggling with your monthly expenses, a budget can help bring your outflow in line with your income. Switching to a cash-only envelope method of budgeting is big step in the right direction toward getting control of your finances.
But if you’re adverse to the word “budget,” don’t worry! You can still save money in your life by checking out Clark Howard’s 6-step guide to lowering your monthly bills — without having to do the budget thing!
