ALEXANDRIA, Va. (7/30/15)--The National Credit Union Administration has released its latest consumer report video, highlighting payday loans, how they work and what alternatives are available to consumers. According to the NCUA, nearly 12 million Americans take out payday loans per year, spending billions in principal, interest and fees.
Payday loans are typically low-dollar, short-term loans that are repaid with a consumer’s next paycheck. They often come with high interest and fees.
The video examines how using payday loans for recurring expenses such as rent and food often results in a cycle of debt, as loans are rolled over.
Ken Worthey, financial literacy and outreach analyst with the NCUA, explains how it can be advisable to seek other alternatives, such as payday alternative loans (PAL), a program administered by the NCUA.
The NCUA’s PAL program caps loans between $200 and $1,000 at 28% interest and application fees at $20, with the term being from one to six months. These loans cannot be rolled over. PAL loans are only available at federal credit unions.