Where People Turn for Cash Loans When Banks Turn Them Down
Since the financial meltdown of 2008, banks have made it harder for consumers to obtain cash loans unless the loan is secured by a tangible asset. Therefore, although banks are still willing to finance vehicles, homes and other large-ticket items, obtaining unsecured, small-dollar cash loans can be difficult or impossible. The natural question that often follows a statement regarding the problems involved with obtaining a bank loan is to ask where people turn if their bank turns them down.
What Do People Do When Banks Turn Them Down for a Loan?
Not too many decades ago, when people needed a small loan to tide them over, they turned to the neighborhood bank. Their banker usually knew them, the names of their children and spouse, how long they had been with their current employer and their hobbies. Today, bankers are less likely to know their customers. In fact, the loan officer in charge this week might be working for a different bank next week.
As if the lack of personal attention does not prove to be a sufficient obstacle to obtaining approval for a bank loan, there is the additional issue of the requirements. Borrowers need an established credit history and a rating that is within the range required by the bank. The exact score depends on the lender as well as the type of loan. According to Carfax.com, buyers purchasing a new car can usually qualify for a loan if their FICO scores are over 600. However, they will pay a higher interest rate than someone with a higher score and may be required to make a large down payment. For a mortgage, most banks will require a score over 700.
Banks evaluate many factors when deciding whether to approve a loan, and the borrower’s credit history is just one of them. They will also look at the borrower’s ratio of income to debts. If the ratio is not within the bank’s acceptable range, the loan will likely be denied. Furthermore, banks prefer to see a stable work history for at least the past two years, verified by the employer as well as copies of the borrower’s tax returns.
Given the stringent requirements, it is easy to see that many people are unable to qualify for a bank loan. However, failing to obtain a bank loan does not eliminate the reason that the borrower needed the money in the first place. When banks turn them down, many people must rely on alternative sources for the money they need.
• They may pawn one or more of their possessions. However, this means that they are deprived of the item until they redeem it by repaying the loan in full, including the interest. If the item is the only television set or computer in the household, the entire family may suffer. If the item is a treasured heirloom, the owner may feel stressed until the pawned item is redeemed.
• They may turn to relatives or friends for a loan. As an article on Bankrate.com notes, this can put a strain on the relationship by changing the power dynamic. The person making the loan may use the debt to manipulate the borrower or feel free to make comments about the borrower’s lifestyle. Furthermore, many people do not have family members or friends who are able to loan them money.
• They may overdraft their checking accounts. However, according to the Huffington Post, overdraft fees average $34 per occurrence, but most overdrafts involve transactions of no more than $24. If you annualize that fee, it yields an annual percentage rate of approximately 17,000 percent.
• They may take a cash advance on their credit cards. Naturally, this requires having a credit card that is not at its limit. There are disadvantages to this solution; the interest rate may be significantly higher than for purchases, and the issuer normally starts charging interest from the first day.
Increasingly, however, when banks turn them down for a cash loan, consumers are turning to lenders who specialize in short-term loans. Whether they seek cash loans online or from a local storefront, it has become extremely common to rely on alternative lenders for short-term, small-dollar loans.
Why Skipping the Bank for Cash Loans Can Make Sense
Many different lenders offer a variety of options that could help borrowers get the cash they need quickly. Some of the options include unsecured installment loans and payday loans, also known as cash advance loans. There can be several advantages to opting for cash loans online or through a lender’s store.
• Most lenders do not take the borrower’s credit history into account when making a decision. Borrowers may not need to have an established credit record, and many lenders offering cash loans online are willing to lend money to individuals with bad credit.
• The process is normally fast. Many times, the decision can be made within minutes.
• Lenders tend to be more lenient than banks when it comes to the length of time the borrower has been employed. Furthermore, it would be an extremely rare event if a lender asked for copies of the borrower’s tax returns.
• Although critics decry the annualized percentage rate for many types of cash loans, most of these loans are meant to be repaid in much less than a year. Even at the highest interest rate, payday loans typically have a lower rate than the APR for a bank overdraft fee.
• Cash loans online offer convenience. There is no need to leave home to submit a loan request, and requests can be made at night or on holidays and weekends.
Make Sure You Choose a Reputable Lender
Whether you are interested in cash loans online or from a local store, you want to make sure that you choose a reputable lender. Here are some things that typically indicate that the lender is someone you can trust.
• The lender explains all of the terms of the loan, including the fees, the due date and the payment options.
• You are allowed to review the paperwork prior to signing, and the lender does not make you rush through it.
• There are no blank spaces in your contract.
• The lender is happy to answer your questions about the different types of cash loans available to help you choose the best loan for your needs.
• You will never be pressured to borrow more than you need or can afford to repay.
If you are considering a loan, you might find it helpful to learn more about the different products that are available. If so, visit the Personal Money Store to find a collection of articles about cash loans and other credit products.