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New type of short term loan providing competition

May 30, 2012 Philip Burgess

New type of short term loan providing competition
When expenses are revealed that have not been planned for, sometimes a consumer's savings cannot cover unexpected costs. Individuals dealing with that problem often look to short term loan companies for help and pay the sum back quickly. While short term loans are one of the most popular borrowing options, a new alternative finance option is expanding the industry.
 The Texas-based Brownsville Herald reported "small dollar" loans have started to become very popular in the region. Similar to a short term loan, companies that offer this option take deductions out of a borrower's paycheck, but not all at once. Instead, the source detailed, the sum is paid back, with interest and an administrative fee, over 12 months. The source noted that in Brownsville, the option is currently available in collaboration with employers, and 21 firms in the area have already signed up to offer staff members this option. The organization offering the loans in Brownsville, the Community Loan Center, has already doled out 400 of these loans, with only 2 resulting in default, the Herald reported. A 2011 report from the Board of Governors of the Federal Reserve System explained lenders can make a large profit from short term loans, as an average of only 4 to 6 percent of borrowers default. Lenders may want to consider expanding their business to include this more reliable type of advance, as it may appeal to a wider range of consumers, boosting business.