Consumers and short term loans
Short term loans are becoming a standard in today’s economy. Many people rely on supplemental income and resources to pay bills, however with the recession in full swing, those options are quickly dwindling. Maneuvering debt is becoming more and more difficult and shortfalls in cash are creating a new market for short term loan funding.
A short term loan is a reliable way to apply for upfront funding. Normally the requirements are you must be over 18, be employed and have an active bank account to apply. If your application is accepted, the lending company calculates how much you qualify for and it’s deposited into your account within a few days, sometimes within just a few hours. You pay back the amount automatically on your next payday.
The simplicity of these loans has only grown their popularity and today’s economy is fueling their usage even more.
Credit card companies
Many Americans rely on credit cards to handle financial shortfalls, however the industry is quickly changing in response to the recession. Here are some new tactics credit companies are using:
- Cutting holders’ limits- even if they are below their current balance
The problem here is that this has a huge impact on card holders’ credit scores. Your available credit to actual credit charges is a deciding factor in your FICO calculation. With balances being cut, it seems like you’ve reached, and exceeded, your limit, when in reality you haven’t. - Raising interest rates for all customers
Although the Federal Reserve brought short-term rates down tremendously, credit card companies are universally raising their rates. The result is card holders will need more time to pay off their debt and incur a lot more interest charges throughout the process. - APR penalties reaching as high as 32%
Credit card companies are penalizing card holders with huge interest jumps. If a customer pays one day late or exceeds their limit by $1, per the new rules, they can suffer tremendous penalty fees. According to a recent survey of credit card companies, almost 90% allow the APR to jump if a customer makes one seemingly innocuous error.
The recession is having a huge affect on the credit card industry and in turn, forcing card holders to compensate for their losses. It’s hard to say when the market will balance itself out and whether or not that will truly bring things back to normal.
Consumers are on their own
Consumers need to have other ways of finding funding. Whether it’s short term loans, downsizing or strict budgeting, people need to tighten up their finances. The huge bailout package is expected to work its way through the economy and actually bring some form of stability mid-2010. What this stability will entail, no one knows just yet. It’s best for Americans to grow accustomed to living thrifty until some indication of an end to the recession and balance of the economy are reached.
Where do credit cards fit
Credit card companies are struggling to manage their businesses just like every company in the U.S. market. Cutting card holders’ limits, raising interest rates and applying high APR penalties, are all tactics being used to minimize their losses. Unfortunately even good customers are seeing these changes and their credit scores are suffering as a result. One analyst suggests cutting down on credit card usage as much as possible until the market stabilizes.
Although credit cards formerly have been accepted as convenient options to paying bills, in the economy today they are bringing many problems along with their usage. It’s simpler and more reliable to look to alternative funding such as short term loans or installment loans as a way to cover bills. There are no penalties and the relationship with this type of lender is short and straightforward. In today’s economy, short and straightforward is the best you can hope for.
Discussion of Consumers Look to Short Term Loans as Credit Cards Cut Limits