If you’ve been following the news for the last few years, you’ve probably noticed how much harder it’s become to get a loan from a bank. People and businesses have been struggling to secure funds from traditional lenders, despite various efforts to improve the flow of credit. As a result, many have turned to alternative financial sources, with mixed results.
These days, you can get loans from a variety of places other than banks, such as online pawn shops, credit unions, payday loan providers, and cash advance services. Let’s take a closer look at these alternatives, weighing their benefits and drawbacks.
Online Pawn Shops
Online pawn shops might seem odd at first, given what we usually think of pawn shops. Instead of loans against cheaper jewelry and household items, these modern, more sophisticated lenders offer loans against high-value items like fine wine and luxury cars.
You can get short-term loans, typically from one to six months, with these shops. You’ll get your asset back once you’ve repaid the loan. While the interest rates are usually higher than traditional bank loans, these loans can be problematic if not managed well due to their short duration.
Interestingly, it’s not just the poor or unemployed who use these loans. Many middle-class people, who have valuable assets but need quick cash, turn to online pawn shops to ease their financial pressures.
Payday Loans
Payday loans have become more popular but also more controversial. These loans let you borrow small amounts for short periods, usually until your next paycheck. However, the high interest rates and hidden fees can make them very costly. If borrowers can’t repay on time and the debt rolls over, it can quickly become overwhelming and impossible to pay back.
Credit Unions
Credit unions are small, non-profit organizations created and run by members who share something in common, like a profession or community. Because they aren’t driven by making profits for shareholders, any earnings go back into the organization.
The interest rates at credit unions are typically lower than those at pawn shops, and much lower than payday loan rates. You can take out loans for anywhere from five to 25 years, depending on whether the loan is secured or unsecured. Additionally, members often have a say in how the credit union is run.
Clearly, banks aren’t the only option for getting loans anymore. Adapting to change can be difficult, and that’s understandable. But the financial landscape has shifted significantly in the past few years. While old opportunities might have disappeared, new ones like pawnbroker loans and other alternative credit sources have emerged to take their place.