West End Neighborhood House and Wilmington Trust offer bridge loans and financial literacy training
Community News
By Adam Zewe
Wilmington, Del. — For many families in need of fast cash, payday lending has been a short-term answer.
But that answer can turn into a massive, long-term problem if a borrower gets trapped under a loan they can’t afford to repay, said Barbara Reed, director of housing and financial management at the West End Neighborhood House.
That’s why West End started Loans Plus, a program that helps families get money they need to stay afloat, she said. Begun in Wilmington in 2007, Loans Plus went statewide in July.
Back in 2005, Reed increasingly saw families coming to West End for help because their finances had been crippled by payday loans. For many, it started with a relatively small amount, like $500 for an unexpected car repair, then escalated when they could not afford to repay the principal and interest when the loan was due days later, she said
Its no wonder: some payday loans had interest rates of 360 percent. Others, an astounding 1,200 percent, she said.
Not surprisingly, families were still fighting to dig themselves out of debt months later, so West End decided to step in and help.
They partnered with Wilmington Trust to offer same-day loans of $300 to $500 with a three-month repayment plan, interest rates capped 15 percent, and other responsible limits. For instance, West End will not make loans that exceed 30 percent of a person’s net pay, she said.
That loans are always a welcome bridge, she said, but often, it isn’t the ultimate solution, she said.
While most of the people who visit West End are paying bills, car loans and mortgages, few have ever sat down to made a budget, she said. So West End case workers work with borrowers to build one, then follow up to check on their situation – financial and otherwise, Reed said.
They also help the borrower with other long-term issues, she said. Maybe they really need a better job or access to more affordable health care, Reed said.
The financial literacy education, support and reasonable interest rates are obvious advantages of Loans Plus over payday loans, but there is another important one: borrowers build real credit. Payday lenders typically only report derogatory information to credit bureaus, she said, but the Wilmington Trust loans allow borrowers to build legitimate credit.
And Loans Plus is working.
The program has a 93 percent repayment rate, she said, and has helped more than 400 families since its inception. Because the repayment rate is so good, West End is only required to keep a loan loss reserve at Wilmington Trust, she said, a fraction of the entire loan.
Loans Plus is prepared to make 900 loans this year, she said, and they are sharing the idea with the FDIC in hopes similar programs can start in other states. Not everyone is approved who walks through West End’s doors gets a loan, she said, but everyone gets financial advice and help building a budget.
For more information about Loans Plus, call 888-936-4727.