Why Would A Housing Agency Offer Small Dollar Loans?
This guest blog was prepared by steering committee member Marie Morse, Executive Director, HomesteadCS
As we start our new year, HomesteadCS announced that we are also starting a new program. HomesteadCS along with our Fort Wayne partners, Brightpoint, and with the help of Prosperity Indiana received a grant from JPMorgan Chase Foundation to begin a small dollar loan program. We have partnered with three organizations in Texas that already had small dollar loan programs. This grant will expand their programs and allow both Lafayette and Fort Wayne to open Community Loan Centers for the counties we serve.
Why would a housing agency offer small dollar loans, you ask? Good question. First we are also a Community Development Financial Institution (CDFI), so doing loans isn’t out of our realm of expertise. Second, we have spent the last several years saving a lot of homes for a lot of families. Unfortunately, just saving their homes is not all the financial help they need. We came to realize that most families spent all their savings, all of their retirement, and all the help available from family and friends to save their home. Now that they have no safety net, any unexpected expense, such as a medical bill, a home repair, or a car repair can put our families back in a financial crisis. Because their credit also suffered while saving their homes, borrowing from conventional lenders is not an option. Many of our families have had to choose payday lending for small loans and if our families were going to payday lending, we were sure families that didn’t use our services were borrowing in even higher numbers.
As we looked into payday lending in Indiana, it is not a pretty picture. Indiana citizens pay $70 million dollars in fees to payday lending in a single year. The average interest rate is 382% APR, they do not report to credit bureaus, so credit scores don’t get better and the entire amount is due within weeks. Now tell me, if you don’t have $500.00 on Wednesday for an unexpected expense, are you really going to have $500.00 out of your next paycheck to pay this back? I know, I wouldn’t.
So our new program will partner with local employers to offer their employees small dollar loans at 18% interest rate, a 12-month term, and will be reported to credit bureaus. While they are making affordable payments, we will encourage them to take our financial education classes and if needed, help them open a checking account through our Bank On program. I think this is going to be a win-win for all involved. More people will know about our free educational classes, employers can offer their employees a new benefit and best of all, our families can begin to build back their credit and have access to an affordable loan product.