The Difference Between Payday Lenders and CDFIs

Loans

Economically challenged individuals do have some options available to them when it comes to loans and other types of business and personal financial assistance. Two types of entities in the United States that provide financing of different types, and in different ways, to economically disadvantaged individuals are community development financial institutions and payday lenders.

 

CDFIs did have something of a checkered past three decades ago. In this day and age, there is governmental oversight of their operations and the generally are regarded as proving access to financial services and loans to individuals who might not otherwise be able to obtain this assistance.

 

Payday lenders remain controversial and under scrutiny today. They are not regulated by a governmental authority in the same manner as a bank or savings and loan. The have been subject to litigation and governmental investigation with considerable regularity in recent years.

 

There are a number of other differences between CDFIs and payday lenders. It is important to understand these differences if you are seeking some type of financing.

 

 

Overview of Community Development Financial Institutions

 

A CDFI is a financial institution that is designed to provide financial services and credit to underserved segments of the market in the United States. A CDFI comes in a number of forms that include:

 

 

  • community development bank

 

  • community development credit union

 

  • community development loan fund

 

  • community development venture capital fund

 

  • microenterprise development loan fund

 

  • community development corporation

 

 

 

A CDFI is certified by an entity of the U.S. Treasury Department. The certification authority is the Community Development Financial Institutions Fund. The Community Development Financial Institutions Fund provides funding to individual CDFIs through a variety of different programs.

 

The Community Development Financial Institutions Fund and the legal underpinnings for CDIFs came into being via the Riegle Community Development and Regulatory Improvement Act of 1994. Although the conceptual legality of CDIFs was recognized in this law, CDIFs were in existence for at least 20 years prior this Act.

 

The broad purpose behind a CDFI is a primary mission associated with community development. The target market can come in the form of a geographic area or a demographic group of residents in a community. Although certified by an agency of the federal government, a CDFI is not a governmental entity itself.

 

The Housing and Economic Recovery Act of 2008 authorized certified CDFIs to become members of Federal Home Loan Banks. Each of the 11 Federal Home Loan Banks evaluate applications for membership submitted by individual.

 

The regulation of CDIFs varies. So-called regulated CDFIs are regulated by the federal government. So-called unregulated CDFIS are in fact regulated by state authorities.

 

There are approximately 1,000 CDFIs in operation today. CDIFs originated about $3.6 billion in loans and investments in 2016. These loans and investments provided funding for about 13,000 businesses and 33,000 affordable housing units in targeted communities in the United States.

 

Overview of Payday Lenders

 

At their essence, payday lenders are companies that lend consumers small amounts of money at high interest rates. The loan is made with the obligation on the part of the borrower to repay the loan, together with accumulated interest, on his or her next payday.

 

Payday loans are typically in amounts that range from $100 to a maximum of $1,500. The average loan is in the neighborhood of approximately $300 to $400.

 

Oftentimes, a person who obtains a payday loan does not pay if off o the date if his or her next paycheck. Rather, they roll the loan over for another period, accumulating even more interest.

 

Laws have been enacted since the Great Recession of 2008 to make payday lenders more transparent. The Truth in Lending Act does require a payday lender to disclose interest rates and other costs associated with a loan. The reality is that many people ignore this information.

 

Unlike a CDFI, a payday lender has not connection whatsoever to the government. Indeed, a notable number of payday lenders have been targeted by state and federal governmental agencies as a result of their business practices.

 

Finally, a payday lender makes only short term, low dollar personal loans. A CBFI can make higher dollar business loans in addition to personal ones.

 

Summary

 

Many individuals and businesses have benefited by accessing the services of a CDFI. A considerable number of consumers have obtained a small amount of quick case from a payday lender. More often than not, in the long run, these consumers paid a considerable amount to get that cash.

 

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Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks and business checks.

Do You Have the Cash to Cover Common Home Repairs?

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If you’re in the process of buying your first home, you probably already know that you have to save for a down payment, put money aside for furniture, and fund an escrow account. However, there are many other expenses that you may not have considered. One of these is the cost of home repair and maintenance. Popular money blog Generation X Finance explains that “unexpected expenses that can really put a hurt on your budget if they aren’t accounted for.”

 

Before we get into specifics, let’s talk about ways you can protect yourself from overspending. First, maintain your home. This means having your major systems serviced annually, cleaning, painting, and repairing issues on the exterior as they arise, and treating your home and appliances with respect. You also have to be on the lookout for less-than-honest contractors who might dupe you into paying for repairs you don’t really need or, worse, cause damage to your property that they can conveniently fix for the “low price” of X extra dollars. Before bringing any repair professional into your home, do your research. Look online for reviews, and interview at least three service providers for each new home repair or improvement project.

 

How Much Do I Need?

 

No universal dollar amount is guaranteed to cover all of your unexpected home repairs. However, it is generally accepted that you should put aside approximately 2 to 4 percent of your home’s value specifically for this purpose. For example, if your home is valued at $350,000, plan to have at least $7,000 stashed away. And remember, your homeowner’s insurance won’t cover issues related to general wear and tear or negligence.

 

Common Repairs

 

Perhaps one of the most expensive home repairs you’ll encounter is installing a new roof. If you have plain asphalt shingles, you may be able to get away with adding a second layer if the underlying structure is in good shape. Eventually, however, you’ll have to do a complete replacement, and that can cost $10,000 or more. If your roof has missing shingles, damaged flashing, or you can see visible evidence of flooding, such as discolored or water-stained walls, you may need a new roof sooner rather than later.

 

Your HVAC unit is another significant expense that can range from about $3,700 to $15,000 depending on the size of your home and type of system you need. Hyde’s Air Conditioning, a California-based HVAC company founded in 1972, explains that even a well-maintained air conditioner will only last approximately 15 years. If yours is more than 10 years old or doesn’t keep your home comfortable from season to season, it may be time for a replacement.

 

Your electrical panel is, fortunately, something you can expect to last for many decades. However, they are not without faults, and an upgrade may be necessary if the home has been added onto or if you notice signs of faulty wiring, such as discolored power outlets, flickering lights, or a burning smell. A new 200-amp electrical panel costs between $1,300 and $3,000.

 

The plumbing system is another moving part that may require periodic repairs. Leaky faucets, clogged toilets, and busted pipes can cost hundreds of dollars each incident. If you have to replace your hot water heater, you can expect a bill of up to $1,500 depending on the type and size of the unit you need. More extensive repairs, such as replacing your incoming water pipes or outgoing mainline, can cost as much as a small car.

 

Don’t let unexpected expenses turn your dream home into a nightmare. Plan ahead for major repairs, and take your time when choosing a contractor. Your situation may be urgent, but you’ll be in far worse shape if you make a rash decision now.

 

Image via Pixabay