Safer Alternatives to Payday Loans for Military Members
During any period of economic uncertainty, such as a pandemic or a government shutdown, financial stress can become a significant burden for military families who face uncertainty about their next paycheck.
In these situations, some are tempted to turn to the quick cash offered by payday lenders. But that easy-to-get credit often becomes a financial trap, leading to a cycle of debt for the servicemember.
The Consumer Financial Protection Bureau (CFPB) official site describes payday loans as: “…a short-term, high-cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans could be available through storefront payday lenders or online.“
The CFFPB notes there is no single accepted definition of a payday loan, but the Howard University official site notes that payday lending “…has a well-earned reputation as a financial system that exploits the underserved, often locking them into ever-deepening cycles of indebtedness. In response, regulators at various levels of government have attempted to control or even ban the use of such products.“
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Safer Alternatives to Payday Loans for Military Members
Why are payday loans a poor choice for service members? Why should you look for better options than a payday loan?
For starters, they have high interest rates and fees. While the Military Lending Act (MLA) offers protection by capping the Military Annual Percentage Rate (MAPR) for most loans to service members at 36%, this rate is still significantly higher than what is offered by reputable lenders.
A 36% MAPR is far from a good deal. Compare that rate to a typical personal loan from a credit union, which might have an interest rate between 7% and 18%. The structure of payday loans often encourages rollovers, where a borrower takes out a new loan to pay off the old one, trapping them in a cycle of ever-increasing debt.
Given that risk, using the financial support systems created for the military community is a safer decision.
Financial Assistance from Military Aid Societies
Every branch of the armed forces has its own aid society designed to provide financial assistance to its members and their families through grants and interest-free loans. These organizations are the most effective and safest resource when facing a financial emergency.
Army Emergency Relief (AER) not only provides soldiers and their dependents with education benefit options, it also offers interest-free loans or grants for a wide variety of needs, from rent and utilities to emergency travel and car repairs. During a shutdown, they often have specific programs to assist with income loss. Soldiers can apply through their chain of command, an AER officer, or at any Army installation.
Navy-Marine Corps Relief Society (NMCRS) offers education benefits and financial aid to sailors, Marines, and their families. Assistance is typically in the form of an interest-free loan for basic living expenses. They also provide financial counseling and education.
Air Force Aid Society (AFAS) provides emergency assistance to Airmen, Guardians, and their families. They offer interest-free loans up to $1,000 with a streamlined application process for immediate needs. For larger financial challenges, they offer need-based interest-free loans or grants. They also provide education benefits.
Coast Guard Mutual Assistance (CGMA) provides aid to Coast Guardsmen, civilian employees, and their families. Their assistance ranges from interest-free loans for personal needs to grants in cases of extreme hardship.
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Options Offered by Credit Unions and Military-Friendly Banks
Financial institutions that serve the military community offer specific products designed to help during a government shutdown and other times of economic uncertainty.
- Credit unions like Navy Federal Credit Union and PenFed may offer special low-interest emergency loans or salary-advance programs during government shutdowns. These are designed to bridge the gap until pay is restored and have far more favorable terms than any payday loan.
- Some lenders may offer a cash-advance option similar to Direct Deposit Early Pay, with terms modified for the current shutdown or economic crisis. Depending on the lender, your experience may vary.
- A standard personal loan from a credit union or bank is another viable option. With interest rates significantly below the 36% MLA cap, these loans are more manageable and come with clear repayment structures that do not trap you in a debt cycle. A good credit score can secure a very low interest rate.
Financial Counseling and Support
The military provides financial counseling services that can help you create a budget, deal with creditors, and develop a plan for financial stability.
- Personal Financial Management Program (PFMP) is available at your installation’s family support center (e.g., Fleet and Family Support Center, Airman & Family Readiness Center). These programs offer workshops and one-on-one counseling.
- Military OneSource is a Department of Defense-funded program offering free financial counseling services online, by phone, or in person. Certified financial counselors can help you navigate the immediate crisis and build a stronger financial future.
- Command Financial Specialists are trained to provide financial education and point you toward the right resources.
Financial Checklist
If you are facing financial strain from a shutdown, do not turn to a payday lender. Instead, take the following steps:
- Contact your branch’s Military Aid Society. This should be your first call. They are equipped to provide immediate, interest-free assistance.
- Talk to your lender. Inquire about special shutdown assistance programs or low-interest personal loans.
- Schedule an appointment with a financial counselor.
- Speak with your chain of command. Your base leadership can connect you with resources and may be able to offer guidance and support.
By turning to these trusted resources, you can navigate temporary hardship without falling victim to the long-term damage caused by predatory payday loans.
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About the author
Editor-in-Chief Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.
