If you’ve been keeping up with the news over the past four years, you’ll have noticed the drastic decline in bank loans to both individuals and businesses. Numerous strategies have been adopted to expand the circulation of credit, yet obtaining funds from conventional lenders is arguably more challenging than ever before. Due to this, both businesses and consumers have sought alternative financial sources, with varying degrees of success.
Nowadays, you can apply for loans from a range of institutions apart from the banks, like online pawnshops, credit unions, payday loan, and cash advance providers, among others. Let’s shed some light on each of these alternatives, discussing their pros and cons.
Online Pawn Shops
The notion of an online pawn shop may seem perplexing, considering common perceptions about such establishments. Instead of providing loans against inexpensive jewelry and miscellaneous household items, these contemporary, upscale asset lenders offer loans against high-value items such as fine wine and luxury cars.
Short-term loans, ranging from one to six months, are given, and your assets are reclaimed once the loan is repaid. While the interest rates might be higher than conventional bank loans, such loans can turn untenable if misused due to their limited tenure.
Interestingly, many middle-class people, often rich in assets but lacking liquid funds, leverage these pawnbroker loans to manage immediate financial strains, dispelling the stereotype that pawnbrokers cater only to the poor and jobless.
Payday Loans
Payday loans, growing increasingly common, have received significant criticism recently. Essentially, you borrow a minimal amount for a week to a month, repaying it once your funds become available. However, towering interest rates and undisclosed fees charged by several firms have made these loans quite expensive. When borrowers fail to comply with the repayment deadline, and the debt is carried forward, it can accumulate to an extent where repayment becomes impossible.
Credit Unions
Credit unions are small, non-profit entities formed and governed by members sharing a common factor, such as a trade union, a local community, or another shared affiliation. In the absence of stakeholder interferences, any profit is reinvested into organizational development.
The interest rates posed by credit unions are generally lower than pawnbroker loans and vastly lower than payday loans. Loans can be taken for a period ranging from five to 25 years, based on whether it’s secured or unsecured. Another benefit is the active involvement and decision-making authority provided to union members.
It is evident that banks are not the sole options for loans. Change might be tough for some to accept, and that’s okay. However, the financial landscape is not the same as it was four years ago. Past opportunities may no longer exist, but new ones in the form of pawnbroker loans and other alternative credit sources have emerged in their stead. Courtesy – SmartAsset.com.
