Small Dollar Loans first became available in the market in February 2008 when FDIC started a two-year pilot project of reviewing affordable small dollar loan programs of various financial institutions.
The pilot project began as a case study that was specially designed to demonstrate how banks and other financial institutions can profitably provide affordable small dollar loans as an alternative to payday loans and other fee-based overdraft protection.
What is the Guidelines of Small-dollar Loan?
The small dollar loan pilot project introduced by FDIC concluded as of the fourth quarter of 2009 and it resulted in a summary of product design and distribution elements for affordable, safe, and feasible small dollar loans.
The following table represents a safe, feasible, and affordable template for small dollar loans.
|Amount||$25,000 or less|
|Annual Percentage Rate (APR)||36% or less|
|Term||90 days or more|
|Fees||Low or none: origination and upfront fees plus interest charged should equate to APR of 36% or less|
|Underwriting||Streamlined with identity proof, income, address, and credit report to determine loan amount and repayment ability|
|Optional features||Mandatory savings and financial education|
The pilot project showed signs of success and it reinforced the Safe, Affordable, and Feasible Small-Dollar Loan Template.
A dominant business model emerged and most pilot bankers suggested that the small-dollar loans were a useful strategy for retaining or developing long-term relationships with the customers.
The pilot project concluded with 28 volunteer banks having assets from $28 million to about $10 billion and these banks have diverse geographic locations.
The banks offered some basic information regarding their small dollar programs each quarter; however, the study honored privacy rules and information that could identify bank customers, names, addresses or account numbers were not requested.
Since the beginning of the pilot project, the participating banks made over 34,400 small dollar loans with principal balance of around $40.2 million.
Two types of loans were tracked by the pilot project: small dollar loans (SDLs) of $1,000 or less and nearly small dollar loans (NSDLs) of between $1,000 and $2,500.
Small Dollar Loan from Clearfield Bank & TrustCompany
Clearfield Bank & Trust Company is one of the banks that offer small dollar loan, which is a good alternative to payday loans and other high cost non-bank lenders.
This low cost loan comes with affordable repayment terms and it is a great borrowing option for moderate income families and individuals.
You can establish or reestablish your credit with a small-dollar loan and build a foundation for other bigger loans such as auto loan or home mortgage.
Affordable Smart Dollar Loan from BankFive
BankFive was chosen as one of the only two financial institutions in Massachusetts to participate in the Small Dollar Loan program introduced by the FDIC in 2008.
Through this loan program, BankFive was able to provide a higher level of service to low income people in the community.
After the pilot project ended, BankFive decided to continue offering the same loan in the name of Affordable Smart Dollar Loan Program.
Eligible borrowers could borrow smart dollar loans of up to $1,000 and there are no origination fees or prepayment penalties. The bank offers a low fixed interest rate at 5.00% APR and loan terms of up to 36 months.