New workplace benefit: loans for low-income employees. Every year, more U.S. firms are offering modest personal loans to their employees, giving employees a way to weather financial stress and crises without resorting to expensive high-cost payday loans.
The wages of minimum income workers are stagnating, supporting demand for small consumer loans. A Federal Reserve survey last year found that 44% of Americans had difficulty covering an emergency expense of $ 400. Many low-wage workers do not have a credit history and do not have access to credit cards or bank loans.
Community networks with participating local firms have cropped up nationwide in recent years.
Community networks with participating local firms have cropped up nationwide in recent years. A loan program in Savannah, Georgia, for example, started in 2015, and another in Geauga County, Ohio, in 2014.
No credit check, no questions asked same-day loans of up to $1,000 are now available from Rhino Foods Inc. of Burlington, Vermont. Questions to any employee who has worked in the company for at least one year. Moneylenders charge an annual income interest rate of 16.99 percent, whereas payday lenders charge 400 percent.
You don’t have to rely only on personal or low-income loans if you need money. Here are a few other options to think about:
You might think a payday loan is the best option because it doesn’t check your credit, but you should only use it as a last resort. Payday loans have higher annual percentage rates (APRs) than other types of loans, usually in the 300 percent to 500 percent range. Cash advance loans, auto title loans, and pawnshop loans are similar.
The greater the APR, the more you’ll pay monthly and overall. Personal loans are usually repaid in two to five years. Longer repayment terms provide cheaper monthly payments and reduced interest charges. A reduced monthly budget owing to a lesser income may make more financial sense.
That’s why it’s critical to compare as multiple lenders as possible. Whether or whether you qualify, be sure you can afford your loan payments before borrowing money. Use our personal loan calculator to calculate monthly payments. Enter the loan amount, interest rate, and period to view the total cost.
A majority of this money goes for necessities such as food and housing. People with small children are eligible for monthly cash payments under the Temporary Assistance for Needy Families program. Qualified applicants can apply, including those who meet the state’s eligibility requirements.
Lenders are more likely to accept a smaller loan since it poses less risk. Reduced monthly payments and interest rate charges are two advantages of a smaller loan. Get rid of some of your credit card debt. Reduce your income ratio (DTI) by paying off your debts. Most lenders will accept you if you have a debt-to-income ratio of 40%.
Banks and internet lenders can charge higher rates and need longer payback durations. Some credit unions may be more forgiving with low-income borrowers.
Instead, lenders may accept tax returns or bank statements. A pension, a retirement account, or government benefits are required if you are jobless. Some lenders can prolong loans if you prove you’ll be working shortly.
Jamie Johnson is a freelance writer with a focus on business and finance who lives in Kansas City. She covers a wide range of personal finance themes, including credit card creation and construction, as well as personal and student loans. Her work has been featured in Business Insider, CO by the United States Chamber of Commerce, GOBankingRates, and Yahoo! Finance, in addition to contributing articles for PaydayPact.