$500 or more
Affordable Military Loans: A Better Choice Than Military Payday Loans
The Challenge: Limited Financial Options for Military Families
Whether it’s for car repairs, travel, or other unexpected bills, financial options for service members can be more limited than for civilians, due to time constraints, lower-than-average pay scales, and a mobile lifestyle caused by deployments, training, and frequent moves.
These conditions have traditionally meant that Soldiers, Sailors, Airmen and Marines have to borrow money. Since it is often hard for them to obtain traditional financing, many military families use a credit card, borrow from family members, or in the past, resorted to payday loans.
Credit cards, while convenient, can take years to pay off if the consumer makes only the minimum payment every month. Borrowing from family members can cause undue stress at home. While payday loans are now more highly regulated than before, they can still lead to rollovers and the beginning of a long-term debt cycle.
Here’s why Congress and the DoD have imposed strict limitations on payday loans for service members. Typically, these loans charged from $15 to $30 per $100 loaned. While that can sound like a reasonable amount, in actual practice, payday loans easily became financial traps:
- A military payday loan could be "rolled over" or "flipped" if it couldn't be repaid, increasing the effective APR and starting a financially dangerous cycle of debt for service members.
- When factored as an annual percentage rate (APR), the fees added up to 390% or more. It wasn't unusual for a service member to pay $800, just to borrow $325.
- Most military payday loans didn't take into account the service members' ability to repay the loan.
- The short duration of the loan, usually two weeks, did not allow the service member enough time to save the money to pay off the loan.
It's been estimated that active-duty military personnel were three times more likely than civilians to use a payday lender, and one in five used the service in a recent year. It's also been estimated that military families paid more than $80 million annually in payday lending fees.
That's why federal legislation now controls loans made specifically to service members. Known as the Servicemembers Anti-Predatory Lending Protection Act, the bill caps the Annual Percentage Rate (APR) on loans for service members at 36% and prohibits automatic rollovers.
Personal Military Loans: Credit You Can Afford
In response to the restrictions imposed on military payday loans, several agencies, finance companies and banks have developed affordable military loans for immediate cash needs:
- Pioneer Military Lending offers affordable military loans that don’t require you to pledge your paycheck or your car title. Pioneer Military Lending provides a credit review for your protection and a 15-day, no-cost return guarantee. That means you can cancel the loan within 15 days at no charge if you find a better deal, or simply change your mind.
- There are emergency relief funds offered by on-installation agencies that provide interest- free loans with approval from a commanding officer.
- Pentagon Federal Credit Union offers short-term cash advances for a small fee and an agreement that the service member will get credit counseling.
- The Navy Federal Credit Union offers a line of credit that requires a monthly minimum payment.
In addition to offering a more responsible solution, companies are beginning to focus on financial education. Many financial institutions realize that education is the pro-active solution to keeping military families out of harmful debt. The Department of Defense is also looking at increasing financial education efforts for those who serve.
The purpose of financial education is to make sure service members know exactly what they are getting themselves into with any type of financial transaction. Having an understanding of basic financial concepts, when coupled with responsible financial alternatives, can not only provide military families with financial security, but can also provide all of us with a military that’s able to focus on the job at hand, rather than problems at home.
$500 or more
