| July 7, 2014

Understanding ARK as a military lending alternative

Is ARK the right way for service members to go in an emergency?

Most short-term lending has a bad rap (and with good reason). Cash advances on credit cards usually come with sky-high interest rates and payday loans can carry $30 or more in finance charges for every $100 borrowed. Still, is all short-term lending predatory or are there good options available when you really need to get cash fast?

If you’re a military household, then PenFed Foundation may have a new tool that can give you the cash injection your budget needs without bringing on all of the common problems you face with short-term lending.

The Asset Recovery Kit (ARK) program is designed to provide short-term lending solutions to service members and their families. The program allows you to borrow up to $500 for a flat fee of $5. There are no interest charges for one month. Like payday loans, there’s no credit check and minimal paperwork to apply, so you can get your cash faster and with less hassle.

How ARK is different from a payday loan

So there are some similarities to payday loans, but there are also some key differences. It’s those little differences that may make ARK a better option if you’re a military family who needs some extra cash:

  1. No interest charges for one month. The term on most payday loans is two weeks, so you have two weeks to pay the money back before interest charges (usually around 782% APR) start to apply. This gives you more time to pay back what you owe and the penalties aren’t as harsh if you can’t.
  2. A lower borrowing ceiling means less trouble ahead. Some payday loans let you borrow up to $10,000 or more with each loan. How exactly are you supposed to pay back that much money in two weeks? It’s impossible. On the other hand, ARK only lets you borrow in $500 increments, which means it’s easier to pay back what you borrowed.
  3. Reduced finance charges. PenFed Foundation states on the ARK page of their website that finances charges can be $19 for every $100 borrowed, but in fact, most payday lenders charge about $30 for every $100 borrowed. In either case, the $5 flat fee for borrowing up to $500 is better
  4. Set limit on borrowing; credit counseling included. PenFed Foundation has set a limit that a single borrower can only apply for three loans within a six-month period. In addition, after if you apply for more than one ARK loan, you are required to speak with a consumer credit counselor to discuss your financial situation. Just like with the credit counseling you receive from agencies like Consolidated Credit, the PenFed credit counselors can provide critical information that actually helps borrowers get ahead of financial trouble.

As with any short-term lending tool, ARK loans aren’t a final solution to financial trouble. At best, they are a tool that can be used to get over a road bump when an unexpected emergency expense pops up. Just keep in mind that quick-fixes are fine, but eventually (and soon) you need to find a real solution that allows you to regain your control when you’re facing a tough financial situation.

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