Changes in law, Lenders Improve Access to Affordable Small Loans

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Changes in law, Lenders Increase Accessibility to Small-sized loans at a reasonable cost
New laws have created payday loans safer in some states, and institutions are entering into the small-dollar market.
Annie Millerbernd Lead Writer Personal loans, "buy now, pay later" loans, cash advance apps Annie Millerbernd is a NerdWallet authority on personal loans. Before joining NerdWallet in the year 2019, she worked as an editor for news for the states of California and Texas and was a digital content specialist at USAA. Annie's work has been cited by the media and has been included in The Associated Press, USA Today and MarketWatch. She's also been quoted by New York magazine and appeared on NerdWallet's "Smart Money" podcast, as well as local TV and radio. She is based at Austin, Texas.





May 24 2022


Edited by Kim Lowe Lead Assigning Editor Consumer lending Kim Lowe leads the personal loans editorial team. She joined NerdWallet after fifteen years in charge of the content on MSN.com which included food, health, and travel. She started her career as a writer for magazines which covered mortgages food, restaurant and supermarket industries. Kim obtained her bachelor's degree in journalism at the University of Iowa and a Master of Business Administration from the University of Washington.







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The rate of inflation has fallen particularly for those already . For many individuals, the idea of a payday loan may seem like the only way to get necessary cash.
In recent years, however, as more states put limitations on high-risk, short-term loans new lenders offering lower-cost small loans have appeared, making it easier than before to find cheap loan that won't drag you into unmanageable debt.
In certain states, new laws can mean better loans
There is currently no federal law that sets maximum rate of interest on small-dollar loans however, . Therefore, the cost to take out a few hundred dollars often depends on where you live.
In the last few years Four states -- Colorado, Hawaii, Ohio and Virginia -- have passed laws that reduce the price of small loans and provide borrowers with longer terms for repayment. A study by The Pew Charitable Trusts released in April revealed that despite the new laws payday lenders continued to operate, but with safer loans.
While some new lenders began conducting business in these states after the law was in effect, the main impact was that existing payday lenders had their storefronts consolidated which made loans cheaper, says Alex Horowitz, senior research officer at Pew.
National banks and local credit unions are able to step in.
A credit union or bank might not be your preferred option for a small loan earlier in time, however it could be in the future.
Seven banks of the majors have been offering or announcing plans to offer small-dollar lending options that have low annual percentage rates in the past few years, Horowitz says, including Bank of America, Wells Fargo and Truist. These loans are offered to existing customers of banks nationwide regardless of state interest rate limits.
Banks base their decisions on their customers' banking history instead of their scores on credit to figure out if they're eligible for a loan. The loans are available for at as little as $100typically are paid back in monthly installments with APRs no higher than 36%, the maximum rate that a reasonable loan can have according to consumer advocacy.
"The fact that banks are now beginning to offer smaller loans could change the whole payday loan marketplace," Horowitz says.
Local credit unions have membership requirements and keep lower profiles than payday lenders, which means they're often overlooked by those who require quick cash, says Paul Dionne, research director at Filene an think tank that is focused in helping credit unions meet the needs of their communities.
However, if you're able to walk to your local financial institution, then there's a good possibility that you'll be eligible for membership according to him.
They do this because they serve people who reside or work in their community. These organizations have been striving for financial inclusion through adjusting their products, like loans to meet the needs of their clients, Dionne says.
"Credit unions are becoming better at offering the top product and not simply saying no , but actually working out the best solution for the person who walks into," he says.
Other borrowing options
Even in states where laws seek to prohibit payday lending in its entirety, people can still to find , says Charla Rios, a small-dollar loan and debt researcher with the Center for Responsible Lending.
It is possible to agree on an arrangement with your utility company or take out a loan from a friend or family member, she adds. Here are some alternatives to borrow before getting a payday loan.
Paycheck advances. Certain companies, such as Walmart and Amazon, let their employees take a portion of their pay earlier as a benefit offered by their workplace. This is a great method of borrowing money if your employer offers the option, however since it's based on the next pay period is best to only use it in a limited manner.
Cash advance apps. Apps such as Earnin and Dave let you borrow a small amount of money, usually between $25 and $200, prior to payday. There are times when they charge fees to get immediate access to your cash or request tips. They also require repayment from your next pay check.
"Buy now and pay later." For expenses that are necessary, a "buy now pay later" loan lets you purchase an item using only a partial payment. The balance is paid in equal installments, typically over the course of six weeks. This type of financing can be interest-free if you pay the entire balance on time.
Low-interest installment loans. Depending upon your income and credit rating, you may be eligible with an installment loan with an APR below 36 percent. These loans can range from $1000 to $100,000, and they are repaid in longer periods, typically two to seven years. Online lenders who offer bad credit loans usually use the soft credit pull which lets you evaluate loans without impacting your credit score.



About the author Annie Millerbernd is a personal loans writer. Her work has appeared on The Associated Press and USA Today.







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