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Small-dollar loans are a viable service for credit union members experiencing difficult financial times. Simply having the service isn’t enough, though. If word of products and services magically reached all interested parties, there would be no need for marketing departments. So, how can credit unions educate their communities about their small-dollar loan programs?
There’s a short answer, and there’s a long answer. We’ll explore both in this blog.
Two Answers About Small-Dollar Loan Marketing
The most difficult aspect of small-dollar loan programs is that they carry with them a certain stigma. After so many years of predatory lenders charging anywhere from 300-800% APR, responsible lenders risk being seen as usurious.
However, credit unions tend to keep their interest rates at roughly a tenth of what most predatory lenders charge. Instead, they focus their efforts toward ensuring their members’ continued financial health and future monetary viability.
Nevertheless, marketing efforts promoting quick loan services must tread carefully. They require effective, considerate deployment. Here are the two ways that credit unions and their marketing departments can reach their communities with small-dollar loan programs.
1. The Short Answer
The short answer is that credit unions have to market the service. Not only that, but small-dollar loan services at credit unions must be aligned with the greater goal of member financial health.
Also, as with most marketing practices, it’s important that credit unions stay in front of their prospective clients. Maintaining contact and reinforcing presence over time—essentially, reminding them that quick loans are available—is key.
2. The Long Answer
The long answer is the better answer. It explains why small-dollar loan programs help both credit unions and their more vulnerable, at-risk members.
The main issue is that people who are desperately in need of a quick, short-term loan are going to find a way of getting it. Unfortunately, the most well-known method of obtaining one of these loans is to go to a payday lender, where interest rates frequently exceed reasonable rates. We’re talking 300+% APR.
Credit unions who value the financial health of their members must offer Payday Alternative Loan Programs (PAL programs) to combat the predatory nature of less-scrupulous members. Reputable financial institutions like credit unions who offer the same services at minimal cost need to make their services known. If they don’t, they put their members at risk of injurious, long-lasting debt cycles.
Reaching out to members who have fewer economic means at their disposal can remind them that they have a safety net available in their credit union. Traditional marketing initiatives may work, but newer strategies that leverage Big Data and analytics platforms may be better suited to identifying and understanding member needs (and ability to repay).
New Strategies for Staying in Front of Members
Leveraging data with machine learning and AI may also help credit unions better recognize at-risk members.
Credit unions who use Big Data and strong data analysis may better understand their members needs. For example, by analyzing a member’s data, a credit union could see that their expenditure’s may exceed their income or savings for the month, which could trigger a message that suggests a small-dollar loan through the credit union.
Additionally, it could alert the credit union that the member may benefit from financial counseling, education in short-term loan risks, and financial planning services. Keeping the member’s financial health at the center of the service can significantly improve their situation, both by offering relevant services and protecting them from predatory third-party lenders.
Next Steps in Small-Dollar Loan Programs
Small-dollar loan programs are a safety net for particular member segments. Reaching these communities is key to responsible short-term loan deployment strategies. If you’d like to learn more about how quick loans can increase your credit union’s margin while protecting its most vulnerable members, follow the links below. Or, if you’d like to see what other steps you can take to help your members through trying financial times, download our Member Crisis Guide.
- What Level of Staffing Do I Need for My Credit Union Small-Dollar Loan Program?
- Overcoming Potential PR Issues from Credit Union Small-Dollar Loan Programs
- The Member Segments Most Affected by Credit Union Small-Dollar Loan Programs
- Measuring the Success of Your Credit Union’s Small-Dollar Loan Program
- Best Practices for Marketing a Credit Union Small-Dollar Loan Program