Up to 10% of Virginia households use high-cost loans

Despite reports of slow economic recovery, many households are still facing acute financial problems.

A study conducted by the University of Virginia revealed that nearly 10% of households in Virginia use personal loans regardless of their interest rates and payment terms. Of these, 120,000 or 4% take advantage of payday loans, 95,000 or 3% use pawn loans, and at least 100,000 households or 3.6% lease home properties to rent-to-own stores.

Moreover, within a four-year period (from 2016 to 2020), 70,000 households from Virginia have used tax-refund anticipation loans and about 150,000 used auto-title loans. These short-term loans end up as repossessions if the loan is not paid in time.

According to the study, 275,000 families use high-interest, short-term loans to pay for their basic necessities such as transportation, housing and food. The same number of households will also apply for loans to pay for sudden expenses such as medical bills, auto repairs or unexpected job loss.

The federal banking statistics noted that black Virginia families are more likely to use alternative-financing schemes than white households. Evidently, lending companies target neighborhoods with more black households.

The study, however, is limited and does not establish whether these businesses are found within the neighborhood because residents use such loans, or whether households use these loans because they are easily accessible.

An earlier study conducted by the Cooper Center revealed that almost 25% of households in Virginia earn less than their basic needs, and nearly 28% do not have cash savings, assets or a financial buffer to support their unexpected financial problems. Families in the low-income bracket are the ones who frequently apply for alternative loans. Unfortunately, these alternative financing sources consume their financial reserves.

According to Rebecca Tippet, the study author, alternative loans target low-income households by extending their paycheck. On the downside, these financial services undermine their capacity to build financial security.

Unlike mainstream credit unions and banks, these alternative lending companies offer short-term loans in smaller amounts but at considerably higher interest rates and charges. In effect, borrowers repay up to triple-digit interest rates and fees when combined.

Among the US states, Virginia remains one of the few that allows every kind of financial service, although the state has begun regulating auto-title and payday loans. As of date, auto-title lending is prohibited in 26 states and payday lending is banned in 13 states.

In a separate study, it showed that 90% of borrowers apply for short-term loans despite having conventional bank accounts because of their convenience and ease of processing. Borrowers think that it is much more difficult to qualify for loans offered by mainstream loan providers than from alternative financing services.

According to Tippet, conventional banks and credit companies need to develop alternative products to offer this market.

Although State laws have been put up to curb use of these alternative financing services, there are no alternatives available for some people to use. Policy makers from all levels must continue to explore ways to address this need.

Why approach a lender and not a bank?

When in need of money, there are various financial options available to consumers today. The two major resources are the bank and a lending institution. However, not all consumers can avail of the services of both institutions. Even with good credit history, not every aspiring borrower can be approved of his or her loan application most especially from a bank.

It’s unfortunate that in the USA, banks have given their thumbs down to people in the low income segment. This is despite the fact that they have favorable credit records. There have been cases of personal loan applicants who approached a bank but were turned down. Some of them were even employed and were regular savers. The only issue was that they had no real credit history.

After being declined by banks, those borrowers approached the lenders which accommodated them. Those approved never missed paying back their monthly dues which earned them a good credit score from lenders.

Receiving a positive credit rating from a lender, however, does not guarantee bank approval of another loan application. This issue has bothered many consumers saying they don’t get the point why banks turn them down when they have proven to lenders that they are able to repay their loan well.

To enlighten you on this matter, according to banks, they don’t apparently trust borrowers who have turned to short term personal loan providers. They point to their computer system as the main judge when it concerns loan applicants who were clients of short term lenders. They see people, particularly the low income earners, who have availed of those types of loans as not reliable as they are likely to default.

On the part of the consumers, many have been greatly discouraged in approaching banks for loans. Apart from the long list of requirements, banks have strict policies such as they easily apply charges to even just one late or missed payment and one bounced direct debit. Additionally, borrowers don’t like the way banks deal with them being not friendly and not flexible enough to adapt to their clients’ needs.

On the other hand, short term lenders are very accommodating, friendly, flexible and easily accessible. With many personal loan providers now on the internet, consumers can apply conveniently and easily even the comfort of their homes. All they have to do is just fill up the online registration form, submit a few requirements, pay the fee, and wait for a few hours to be approved. Loans can be released in a matter of several hours.

Sadly, the banking industry in the USA has not acted on the government’s advice to get credit moving. So if you are a low income earner wanting to borrow money for your immediate needs, the better alternative is go to a short term lender instead and apply for a payday or cash advance loan. It may be worth going directly to these personal loan providers rather than waste your time consulting with a bank when in the end, you’ll just be turned down. Just keep in mind to be responsible enough and pay your loans on time to establish a good credit record moving forward.

Promote energy efficiency and save money

One of the ways people can save today is by cutting on electricity bills in the home. By doing this, you not only save money but you’re making house energy efficient as well. The end result is you contribute to the preservation of the environment which is highly important these days.

The financial comparison site, Money Supermarket reports that the energy bills of the average home have doubled since seven years ago in 2013. Additionally, Of gem has predicted that many homes are likely to face very high electricity bills that they can no longer afford to pay on a regular basis.

With so many tools and gadgets that help people cut energy costs, there’s no reason why households can’t achieve a lower power bill each month going forward. You will be surprised to gain hundreds of dollars in savings if you’re only consistent in your efforts. It’s just a matter of looking into the different aspects of your home which can be made more energy efficient not only temporarily but for the long term.

For instance, the heating and cooling system in your home is one important component that you can look into. Check that your home is well sealed and is properly insulated so that the system can be used in the most efficient way possible. Make sure as well that all electrical appliances are unplugged when not in use to avoid continuous energy consumption. You should be aware that an appliance that remains plugged into the socket although switched off continues to eat up electricity. In other words, from now on, it would be to your advantage to avoid putting your television units and computers on standby.

Take advantage of the freebies or other incentives being offered by providers. They can be products, vouchers or rebates that are worth appreciating. These are available when you change providers. But a word of caution, though. Please do your research first before making the move to ensure that you’re getting the best deals around. Always do a comparison first to avoid any regrets later on.

Also, you may want to check if your electricity meters are regularly read. Meter reading has to be regularly done and providers should not just rely on estimation when making your bills as this can actually lead to higher bills. You need to verify then by comparing your previous bill to the new one and consulting your provider as soon as you observe a huge difference. Another option is to submit your own meter readings in order to avail of a refund later.

Finally, you may want to avail of the short term payday and cash advance loans while you’re still in the process of paying up your huge electricity bills and doing some fixes in your home that will ensure energy efficiency of your important appliances. These are more affordable loans with easy repayment schedules which employed people can take advantage for emergency situations. Electricity bills need to paid right away otherwise, your supply will be cut off so if you may need some instant cash, these payday and cash advance loans can help you greatly.

Which to prioritize – saving money or paying debt?

It’s not always that people have enough money to spend for their daily needs. This is true even for men and women whether single or married who are earning a living. Sometimes, the monthly income one receives from his or her work is just not enough to make both ends meet.

What happens often is that borrowing money and availing of credit becomes a necessity. Sadly, this habit is also a major contributor to people’s going into debt. When loans and credit card bills are not paid on time, this can lead to a higher balance already difficult to pay and eventually debt when not settled immediately.

Research by the Office of Fair Trading revealed that in the USA, one in three people are pressured to avail of credit when presented to them and one in five sign credit agreements which they actually regret. It’s been found as well that majority of consumers don’t always read the terms and conditions when signing credit agreements.
saving money or paying debt
With this kind of financial situation facing them, borrowers eventually get confused about their priorities by the time they have enough money. Those who are eager to save money for their future and those who want to pay their debts right away often ask a common question about which they should give utmost attention.

Many people in the USA today are overpaying for their loans. According to an analysis by Mark Vern, this has put the overspend on debt amounting to as much as 35 million sterling dollars each year. These usually come from personal unsecured loans including payday and cash advance, credit cards and mortgages which otherwise could already have allowed each household to save some 2,700 dollars.

The firm further pointed out that consumers could have saved much if only they were better educated about the loans and other forms of credit they availed of from various providers. For instance, those who took out loans on variable interest rates can actually move to the fixed and discount rates to enjoy savings. For people fond of using the credit card, instead of going for the plastic that charges from 10 to 16 percent interest rates on outstanding balances, they can move to one that charges zero rates. For the unsecured personal loans, a better way to save money is to transact with online providers rather than the traditional firms. By choosing short term lenders that do business on the internet, applying for loans and getting approval is faster and easier these days.

Financial experts strongly believe that people are better off paying their debts for now. This should be their priority above anything else if they want to lead a worry free life in the long run. This is also due to the fact that outstanding debts can easily accumulate interest over time which could make it difficult for average income earners to pay if they continue to ignore them. Another major reason is that savings earn little interest at this point in time especially with banks offering very low rates that are not attractive at all. With savings rates ranging from only four to five percent a year offered on 100 dollars, for instance, many people would think twice about putting their money in a bank.

How can a savings account help?

One of the best ways to save is by having a savings bank account. This is where you’ll be putting the extra money you’d like to set aside for your future as well as that of your children if you have a family. And as long as you don’t withdraw your funds here but continue to add to it, your money will increase in amount later on. It is because a savings account earns interest over time.

Today, people have a choice between opening a savings account in a traditional brick and mortar bank or have an online account. There are major differences between the two and each has its own pros and cons. Opting for the traditional banks means you’ll have to travel to and from every time you need to do some transactions. You will have to fill out and submit forms as well for specific transactions such as deposit, withdrawal and so on. A benefit, though, is the interaction that occurs between the bank staff and the client. In this way, you can easily ask for information or complain about a problem and get answers right away.

By opening an online account, much convenience can be enjoyed by depositors. Firstly, they can do their transactions in the comfort of their homes or offices. Additionally, no papers are required just online forms and your money can then be easily transferred from your account to another account or to a company such as when paying bills.

An online account, however, may not be ideal for people who are not that internet savvy especially the older ones who have little or no experience in computer operation. Some of them have fears about security issues as well as typo errors that hold them back in utilizing the online service of a bank.

What’s good to know is that many banks these days offer online banking service. At least by doing this, they’re giving their valued clients another option. This type of service can greatly benefit companies that have established an online presence and are into ecommerce.

In the USA some banks that provide online banking service even offer introductory bonuses for specific periods and don’t require their clients to submit an advance notice before they can access their funds. These are some of the incentives that banking institutions have started to offer to encourage more people to open online accounts.

Now to those who’d like to start saving and open an account with a bank, whether online or offline, it’s important that they follow the terms and conditions of their preferred banking institution. In particular, one has to be consistent in depositing a fixed amount every month according to the duration that he or she has chosen in order to earn the appropriate interest.

On the other hand, saving will also greatly help you settle debts that you owe such as the short term payday and cash advance loans. You may have availed of these personal unsecured loans during emergency situations but these are no major issues because they’re very affordable notably for people who are currently employed.

If you’re concerned about the future of your family, then you should commit to paying your loans and saving your extra funds because they are the right steps to attaining your financial goals.