Alternative Financial Sources Offer Loans

Alternative lenders as financial sources offer a short-term, small-dollar loans to million Americans. Credit unions, which are effectively not-for-profit co-operatives, are stepping up to offer cheaper alternatives to the short-term, high-interest loans provided by payday lenders. Credit unions are an alternative source for the kind of services a bank provides. Demand for short-term, small-dollar loans from credit unions rose 52 percent in the second quarter, National Credit Union Administration data showed. More aggressive selling by these unions will have seen that rise further in the third quarter. Livonia, Michigan-based Co-Op Services Credit Union has begun a “Shred My Card” campaign offering $105 to people who open a free checking account with a direct deposit and who cut up their bank debit card. The credit unions are also lobbying to have their business lending cap more than doubled to 27.5 percent of assets so they can better target small businesses unable to access bank funding. Among the crop of alternative finance companies opening their wallets to cash-strapped consumers through the Internet are BillFloat, Pawngo and Prosper.com. Online lender BillFloat, backed by Ebay’s PayPal, offers a 30-day loan of up to $225 to consumers looking to pay their bills. The service, started two years ago, has an annualized interest rate of 36 percent, making it far cheaper than payday loans, where rates can be as high as 500 percent. Pawngo.com, an online pawn lender backed by Daylight Partners, Access Venture Partners and Groupon-backers Lightbank, offers up to $1 million to small business owners with collateral — a shift from normal pawn operators where small loans of less than $1,000 are the norm. Pawngo, which has offered pawn loans on Louis Vuitton bags and Solitaire diamond rings, is attracting better-off clients, who have seen banks pull back their lines of credit. Peer-to-peer lending site Prosper.com, which has raised more than $70 million in venture funding, connects people who want to borrow money with those who want to invest. It has more than $262 million in funded loans since it launched in 2006. The growing demand for newer financing options is attracting venture capitalists, who are backing new, Internet-based entrants. Demand for these services is also spurring alternative financial firms to tap public markets for the cash they need to grow. Regional Management Corp and Community Choice Financial have filed for initial public offerings this year, and Cash America said it would spin off its online lending unit, Enova International, in a $500 million IPO. Investors are likely to buy into these IPOs, despite the regulatory overhang, as these companies are immensely profitable. Click To See More Loans Info

Discover Buying $2.5B In Private Student Loans From Citigroup

Discover Financial Services on Thursday said it is buying another $2.5 billion in private student loans from Citigroup. Discover held $52.51 billion in total loans, including credit card balances, as of May 31, the end of its fiscal second quarter. Of that, $4.57 billion was student loans. Student loans tend to be among the most reliable types of lending in terms of payback. “We really like this student loan business,” company’s president said. “In the U.S., as you know, education costs are increasing much faster than income. And therefore, students need funding for tuition fees.” Discover expects to be the third-largest originator of private student loans in the country this year. Click To See More Loan Info

Student Loans Information From Susan Orman

It seems you cannot get a simple $30,000 a year job anymore without having to pay $50,000 for a Bachelors Degree. A moratorium on the current level of student loan debt makes no sense, students still would not be able to pay them. She explains how student loan crisis is looming as the next big thing. Susan Orman says the real estate implosion and banking crisis including the credit crunch have not yet been dealt with well. She implores Congress to head this one off at the pass as our young people are being saddled with compounding interest at such a rate that very quickly the loans become insurmountable.