Vancity is one of the first mainstream banking and credit institutions in Canada to offer short-term loans of $1,500 or less to its members at 19 per cent interest with no added fees.
It says some 900 "Fair & Fast" loans have been approved since the program began a year ago, and the default rate has been "extremely low."
"It's much, much more reasonable, easy to pay back, [and] you develop a credit rating — which is really important to your future," said Linda Morris, senior vice president of business development, member and community engagement at Vancity.
"The other piece of it is that you're actually developing a relationship with, in this case, a credit union, which means you can be there to receive advice [and] the possibility of other financial services."
"In other words, you're not being seen as a transaction but rather as a whole person."
However, Morris acknowledges that not everyone is eligible for a short-term Vancity loan. The credit union looks at an individuals income, credit history, and the likelihood of paying back the loan without falling into debt.
Payday loans as a last resort
Scott Hannah, president of the Credit Counselling Society of B.C., says Vancity's program is pretty good. The interest rate on its short-term loans is much lower than the maximum 23 per cent most payday companies impose.
However, he says payday loans should be a last resort and people in need of quick cash should try alternatives first.
"Something a person might want to look into is whether they are able to approach their employer [for an advance], if that's a possibility. Sometimes it is."
He says another option is to approach a creditor.
"If a person has a good credit rating but [is] short on cash, are they able to delay a payment to make up that difference in the short-term?"
Hannah also recommends people look at their budgets and figure out where they can cut costs or make some quick pocket change, like getting rid of an expensive storage space and holding a yard sale.
And if that doesn't work ...
"Sometimes, as hard as it might be, approaching a friend or family member can work too. Of course, that can require swallowing your pride, and that's hard for people to do."
In the long-term, however, Hannah says it comes down to people developing critical money skills. He says the payday loan business has burgeoned because people do not have the financial literacy to properly manage their money.
"A lot of consumers are just getting by, especially in high housing cost markets like Vancouver and Toronto. ... People need to learn to master their money instead of their money mastering them."