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The point of any member service is primarily to serve members. Surely then, if you’re considering a small-dollar loan program at your credit union, you’ll want to know if it will get used, and by whom.
Fortunately—or unfortunately, depending on how you see it—credit union small-dollar loan programs
Not Exactly Everybody, but Not Far from It
One of the perceptions around short-term credit is that it serves primarily low- and middle-income workers. While that’s certainly true, it doesn’t tell the whole story. We’ll get to that soon.
The Threat of Homelessness
Currently, there are only 22 counties in the entire United States wherein a full-time job at minimum wage can cover the average rental price for a two-bedroom apartment. With housing costs far outpacing wages, increasingly more Americans have trouble making ends meet.
Unexpected living costs such as medical bills, car trouble, and missing a couple shifts with the flu represent a serious housing threat to low- and middle-income earners. Additionally, 40% of American workers can’t afford a $400 emergency, and almost 60% live check-to-check. Small financial setbacks have huge long-term consequences.
Along the Razor’s Edge
Living check-to-check is a careful balancing act between income and expenditures. Unfortunately, budgeting isn’t an exact science. When there’s more month than paycheck left, or when a crisis occurs, too many Americans must choose between groceries, housing, and bills.
Low- and middle-income earners are most likely to need a credit union small-dollar loan program. For them, a safety net for emergencies or a bridge between paychecks can mean the difference between financial solvency and homelessness.
Millennials Borrow, Too
Another member segment affected by credit union small-dollar loan programs is Millennials. Their economic situation is considered especially unfortunate.
Additionally, as the first generation to gain fluency with social media, Millennials value relationships highly. Small-dollar loan programs like QCash use relationship data rather than credit reports to underwrite loans. As a result, Millennials are more likely to apply and get approved for short-term loans with a trusted lender.
Another impacted member segment are members who like instant gratification. These are the people who see something and don’t want to wait to buy it. Who knows—maybe they’re trying to catch a sale.
People who don’t want to wait for their paycheck to arrive—or clear—aren’t the primary focus of credit union small-dollar loan programs. Credit unions may not make money on these loans, and they don’t serve critical member needs. However, credit unions are still providing a valuable service for these members, so at least there’s that.
For the most part, credit union small-dollar loan programs affect cross-sections of almost all member segments. For others still, these programs offer a safety net, just in case.
If you’d like to read more about credit unions and small-dollar loan programs, follow the links below. Or, if you’re curious about how you can help your credit unions when they need you most, 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