Credit Unions Test “Borrow and Save” Programs
A number of credit unions are testing out a new program that lends money to members, but with strings attached.
Called “Borrow and Save,” these programs tie small loans to forced savings. When they work, CU members can borrow to pay off credit cards, while simultaneously becoming savers per the terms of the loans.
In a recent New York Times piece, Ann Carrns reported that at least 12 U.S. credit unions are now pilot testing these programs, which were developed by the non-profit nonprofit Filene Research Institute.
With Borrow and Save, some of the money the member borrows is set aside in a savings account. It sits there as the borrower repays the loan.
So, a member might borrow $2,000 and have $250 or $500 — or even $1,000 of that set aside as savings. He/she then pays off the full $2,000 – with interest – while the set aside amount remains in the savings account.
Carrns reports that, in the Filene test program, loan amounts ranged from $200 to $2,000, and the set aside amounts ranging from 5% to as high as 25% or 50%.
Loan terms ranged from 90 days to a year. Rates ranged from nearly 10% to as much as 28%.
So, the loans work to help people meet immediate needs, while also helping to prepare them for future emergencies.
This program is being pitched as an alternative to traditional payday loans. These loans often lock people into a cycle of perpetual high-interest debt, where borrowers never really pay off the original loan before needing emergency cash again, and taking out another loan.
Borrow and Save hopes to break this cycle by helping people build an emergency cash fund. If these tests are successful, we may see these programs at many more credit unions across the country.
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