Small-Dollar Loan Alternatives

Small-dollar predatory lending takes advantage of low-income people in need of short-term financial assistance by charging exorbitant fees and interest rates, lending without regard to borrowers’ ability to repay, continuously refinancing loans over a short period of time, and committing outright fraud and deception. Low-income borrowers serve as easy prey for predatory lenders, so it is no surprise that borrowers of these small-dollar, short-term loans are more likely than others to experience credit card delinquency, unpaid bills, overdraft fees and bankruptcy. To combat these predatory practices, many nonprofits across the country have developed small-dollar loan alternatives, such as lending circles, that allow individuals to pay back the loan either without interest or at a rate this is feasible for low- and moderate-income families. Often these products report to credit bureaus, allowing individuals to build their credit at the same time.

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