It’s the middle of the week and an unexpected necessary expense comes up, but you don’t have the cash to cover it.
So what do you do? Some people may call up friends or family, dip into their rainy day fund or just wait until payday. However for those living week to week, they may have no other choice than a payday or car title loan.
While these types of short-term loans are great for quick emergencies, they may not be the best course of action, especially if they are taken out on a regular basis.
The problem with these loans is they can get people into financial trouble if they are used too often.
To help protect those people, the U.S. Consumer Financial Protection Bureau has proposed some rules in an effort to prevent borrowers from falling too far into debt.
The rules could mean lenders will have to establish whether the borrower has the ability repay the loan before issuing the cash. That’s accomplished by reviewing the person’s income and or debt history.
These rules are not law yet, but could be.
Concern around the proposed rules by these lending companies is that by restricting people’s access to credit choices, there will be a negative impact on their industry.
If at all possible, people avoid taking out a payday loan due to the high interest rates and other lending fees.
There are alternatives to taking out a payday or title loan. As mentioned earlier friends and family may help. Other ideas include asking an employer for an advance.
If the option is available, putting away money for a rainy day fund is obviously the best course of action. Not only does it mean you have money for those unexpected expenses, you are saving your self hundreds if not thousands by not having to pay interest rates and all the other fees that come with borrowing money.