Fresh Start Loan
Loan Amount: $500 - 3,000
Interest Rate: 4% above loan fund savings rate
Term: Up to 24 months
Market: The unbanked/underbanked in Oakland, CA
Loan Type: Secured (by loan funds in savings account or CD)
The Fresh Start Loan is a double asset building tool with no savings requirement up-front, families build both savings and credit while the lender secures the loan with the savings account being accumulated.
People's Federal Credit Union (FCU) Fresh Start loan helps individuals build credit and savings with little risk to the lender. The borrower or "saver" chooses the loan amount or "savings goal," anywhere from $500 to $3,000. People's FCU opens a savings account for the client and deposits the full amount of the "savings goal" which then earns interest/dividends at an approximate rate of 0.5% annual percentage rate until the loan is paid in full. The borrower "purchases" the savings account in installments by making steady monthly payments plus 4% above the interest rate of the account where the loan is held (loan funds can be held in a savings account, 12-month CD or 24-month CD). The credit builder can close the loan early and receive the portion of a savings account "purchased" with interest, but is encouraged to leave the full savings account intact until the loan has been paid in full. People's reports the monthly loan payments to the credit bureaus, giving borrowers the opportunity to build credit and accumulate savings.
CBA Challenge:
Could the Fresh Start Loan be the newest innovation product for IDAs?
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People's Federal Credit Union (FCU), a division of Self-Help Federal Credit Union, is a certified CDFI in Oakland, California. Its mission is to increase the community's use of, access to, and control over financial services by harnessing the economic diversity of Oakland. They aim to promote the economic empowerment of Oakland's residents, especially those traditionally underserved by financial institutions. This is done by keeping rates and fees low, providing financial education to community members, and creating a unique environment in which members understand their importance to the credit union's success. People's FCU offers a variety of loan products including auto loans, secured and signature loans, and a Fresh Start credit builder loan.
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