Consumers can save on borrowing costs if they repay payday loans quickly.

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THE need for short-term credit is real. Many working families live paycheck-to-paycheck. They don’t have alternatives to short-term loans when emergencies arise, such as car repairs or unforeseen medical expenses. And not everyone has the luxury of borrowing from friends and family when times get tough.

Despite the reforms in recent years, the current payday-lending system — providing high-interest, short-term loans — traps too many consumers in a continuous cycle of debt.

Current payday loans often require a balloon payment every two weeks when the loan is due. Nationally, 80 percent of the time this forces the borrower to take out another high-interest loan to pay off the last one.

Our solution is simple: Under ESSB 5899, traditional payday loans are replaced with more consumer-friendly installment loans. These give borrowers more time to repay — up to six months — rather than the two-week period under the current payday system, allowing consumers breathing room while still making credit accessible.

Our proposal is modeled after the successful, nationally acclaimed Colorado law where consumers have saved 42 percent in interest and fees since the law was implemented.

Here is a snapshot of the fees the borrower pays under the existing payday system and our installment proposal:

• A $700 loan repaid in two weeks: A payday loan would cost the borrower an extra $95. Under our bill, an installment loan would cost $18 more.

• A $700 loan repaid in four weeks: A payday loan would cost the borrower an extra $95. Under our bill, an installment loan would cost $35 more.

The average payday loan is four weeks. But if the borrower takes out the maximum number of loans under the payday system they would pay $760 in fees but only $450 for maximum length of an installment-loan plan.

We all hope families will manage their finances carefully in order to avoid needing short-term credit. That is why we’ve ensured our proposal requires the installment-loan lender to contribute one dollar from every loan to pay for financial literacy training offered by the Washington State Department of Financial Institutions. This would raise hundreds of thousands of dollars to help families better prepare for financial emergencies in the future.

For more than a decade, critics of the payday industry have called for reforms offering longer terms and more affordable loan products. Now we have the opportunity to implement one.

Let’s give families something that works for them when they hit tough times.