About The Loans

Product Descriptions

About the Loans

What kinds of loans are included in Reality Check?

Reality Check includes small signature loans of $3,000 or less at origination. Most credit unions already make such loans. Two products have been identified to fill critical credit needs, as follows:

NEED: Short-Term Cash
PRODUCT: Smart Size Loans
DESCRIPTION: A loan of $3,000 or less

NEED: Establish/Improve Credit
PRODUCT: Credit Builder Loan
DESCRIPTION: A loan of $3,000 or less with loan proceeds placed in a restrictive share/savings account; funds available as loan is paid down

Does my credit union have to offer both products?

No. If your credit union already makes signature loans of $3,000 or less you do not need to add new loan products.
However, adding a credit (re)builder loan can help your members build credit and savings and increase your loan portfolio.

Product Descriptions

smart size loans
Smart Size Loans

Smart Size Loans are unsecured loans of $3,000 or less. All the loan proceeds are released at the time of closing. The loans could be used for many purposes, such as starting one's own business or purchasing equipment for a business, to make a large
household purchase, for debt consolidation, to pay for a medical procedure, or to help a household through a financial emergency. Most credit unions already make such loans.

Given today's high unemployment rate and the struggles many individuals, particularly young adults, are having with finding suitable employment even with college degrees, marketing your micro-loans as careerbuilding opportunities may have a strong impact on loan response. It could be marketed to meet new or
additional training needs, new business attire, trade tools, etc.

How you market such loans will indicate to your members how willing your credit union is to help them with their small financial needs. Acknowledging that people have emergencies or unexpected expenses and your credit union is prepared to help can be a positive message of hope. Whereas it is strongly recommended
that credit unions price their unsecured loans based on risk or a member's credit score, the message to members should acknowledge that life can throw curve balls occasionally and your credit union is prepared to help your members with less-than-perfect credit.

credit builder loan
Credit Builder Loan

A credit rebuilder loan enables members with damaged credit to rebuild their credit histories. A Credit Builder loan helps members with little or no credit to build a
history. The concept behind a Credit Builder loan is that none of the loan proceeds are released at closing. Instead, funds are placed in a restricted share/savings account and available for release as the loan balance is paid. down The goal is to help members build or rebuild their credit by providing a positive credit reference.
Why should a credit union help members rebuild or build good credit histories? Because credit scores can have a significant impact on their members' financial lives. For example, a credit score can affect a person's ability to:

  1. Get a loan and the cost of that loan;
  2. Get insurance and the cost of the insurance;
  3. Qualify for utility payments without a substantial security deposit;
  4. Rent or lease an apartment;
  5. Get a job.

In fact, the Annie E. Casey Foundation reports that a good credit rating can save the average borrower $250,000 in interest over a lifetime. Some 70 million Americans have either poor credit or no credit history.

The Benefit

Through the Reality Check loan program, credit unions have the opportunity to:

  1. Help their members review and understand their credit and credit scores;
  2. Teach members about how they can improve their scores;
  3. Communicate the importance of maintaining a good credit score;
  4. Provide members with a loan to build or rebuild their credit;
  5. Use the closing of the loan as a "teachable" moment;
  6. Build member loyalty and increase the member's capacity to use other credit union services.

Additional Resources

Download the Reality Check Toolkit for more about these loan products, sample policies, training staff, mitigating risk and more.


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