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Smart Money Podcast: Buying Local, and Emergency Loans – Business – The State Journal-Register

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Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions. This week’s episode starts with a discussion about how to help small, local businesses, which have been hit

Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions.  

This week’s episode starts with a discussion about how to help small, local businesses, which have been hit much harder by the pandemic than the big online shopping sites. One way is to seek out local sources for products you might otherwise buy from the online megastore. Another is to order directly from local restaurants rather than using delivery apps. If money is tight, a social media shoutout or five-star review can help others discover local gems.

Then we pivot to this week’s question from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?’

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Apple PodcastsSpotifySoundCloudOur take

Many people aren’t prepared for unexpected expenses, including car repairs. If they don’t have savings or good credit, a so-called ‘small-dollar loan’ may seem like a good option.

Small-dollar loans are usually for amounts of $2,500 or less. Banks, credit unions and reputable online lenders typically don’t make loans this small, so people often turn to payday lenders or unsavory online outfits. Interest rates can be extremely high and you may have only days or weeks to pay off the loan, increasing the chances you’ll have to renew the loan or borrow elsewhere to pay it off. This is known as a debt trap.

Some credit unions offer ‘payday alternative loans’ that allow people to borrow small amounts at reasonable interest rates. Borrowers can pay off the balance over 6 to 12 months, reducing the chances they’ll have to borrow again.

Michelle’s car is still drivable, so she may have time to save up the cash she needs. If not, she has time to check with local credit unions to see if any offer these alternative loans. A co-signer also could help her get a loan at a reasonable interest rate, or she could look for lenders willing to make secured loans ” personal loans backed by an asset, such as a car or home ” at a reasonable rate.

Our tips

Explore your options. You may be able to borrow from your local credit union, or from family and friends.

Bad credit equals higher rates. If your credit isn’t great, you may be able to qualify for a lower rate by getting a co-signer or a secured loan backed by an asset you own, such as a house or a car.

Know the risks. Some small-dollar loans, including payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.

Have a money question? Text or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, return to the podcast homepage.

Episode transcript

Liz Weston: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Liz Weston.

Sean Pyles:   And I’m Sean Pyles. As always, be sure to send us your money questions, call or text us on the nerd hotline at (901) 730-6373, that’s (901) 703-NERD, or email us at podcast@nerdwallet.com. I am continually impressed by how insightful and smart all of your questions are, so please keep them coming, and we will keep answering them.

Liz: Also, hit that subscribe button if you want more Nerdy goodness delivered to your device every Monday. And if you like what you hear, please leave us a review. On this episode, Sean and I discuss small-dollar loans, their uses, risks and alternatives. But first, in our This Week and Your Money segment, we’re talking about how to help local businesses stay afloat during the pandemic.

Sean:  This has been something I’ve been thinking about since the pandemic began and everything shut down. One, as I talked about a couple of weeks back, I was doing some impulse shopping and I was trying to see how I could make that be more productive for my local economy and help smaller businesses. But what recently got me thinking about this as well is that there was an article I read in The New York Times that found that a third of all of the small businesses in New York City may never reopen. That was according to a report by the Partnership for New York City, a business group. So that’s really staggering if you think about how many local shops you go to for a cute houseplant or a cup of coffee or clothes for your kid ” all of these places that you know the owners and you rely on their specialty goods for. A third of them being gone is heartbreaking, and there are things that we can do to make sure that some of them survive.

Liz: And one of the things you should think about is which businesses do you want to be able to go to when this is all over. Those maybe are the ones that you target. But overall, your local economy is going to be stronger, the more money that you can spend locally. When you spend with local businesses, more of the money stays in your community and helps people that you know, and also helps you because these businesses survive.

Sean:  Right, and then they end up paying taxes and that goes to your city government, and that helps pave the streets and keep the lights on the road, and it keeps your bridges working as bridges should. All of these important things, and again, local is really where you can make the most impact, whether it’s in an election or in an economy.

Liz: I recently wrote a column after interviewing the behavioral economist, Dan Ariely, and he and his colleagues are doing something I thought was really cool. There’s 50 of them at the lab where they work, and they basically pick a local business and every week each of them spends $100 there. And that’s $5,000, which wouldn’t be a drop in the bucket to the bigger stores, but it could be enough to keep a smaller place going. And I mean, you don’t have to do this by spending $100 every week. But if you can talk to some of your coworkers or your friends and neighbors, and pick a different company or a different local business every week and put some money there, that could keep them going until the pandemic is over.

Sean:  I really love that idea because that way you ensure that you’re getting money into your local economy, helping a smaller business right in your area. I found one way to do that that isn’t as expensive for some people who maybe don’t have $100 to spend. One way was kind of a pay-it-forward gift card option where you buy a $10 gift card for a friend for a local store, and then you encourage them to do the same for someone else, And $10 is enough where you can get something small, like a succulent from your local plant store or a face mask from a local craft store. And then someone else can do that as well. So you keep supporting other smaller businesses while also connecting with your friends, which is really hard to do right now as well, so it’s a win-win in different areas.

Liz: That’s a great idea. Another thing I like to do is frequent our farmer’s market, ” and not just because there’s always celebrity sightings there, I live in Los Angeles, that’s part of it. Sometimes smashing into a paparazzi is the first indication I have that anybody famous is standing next to me. But anyway, farmer’s markets, obviously, these are all local farmers ” this is money, again, that stays in your community. And you tend to have, at least the ones I’ve been to, there’s a pretty wide variety of stuff that you can buy. It’s not just food. It can be crafts, it can be clothes, so that’s something to check out.

Sean: Yeah. I think one thing that has been really helpful for me when trying to shop local is thinking about one, all of the new things that we have to buy in this pandemic economy, like hand sanitizer or face masks, and then thinking about the ways that local companies have been adapting to fill those needs. Obviously, people know that in Portland, we have tons of breweries and distilleries and we can’t really go to them in the same way we could before. But a lot of them are actually making hand sanitizer now that you can purchase from them, so even though I’m not going to my favorite brewpub for a beer the way I would have maybe 12 months ago, but I can get hand sanitizer from them. So that way I’m filling a need that I have while also supporting a company that I know I want to support, but can’t in the way I would want to.

Liz: That is so cool.

Sean:  Yeah, and a lot of times they come in the alcohol bottles, which makes it even more fun in a way.

Liz: Ah, I love that, I love that.

Sean:  Yeah, yeah.

Liz: And that’s a great gift, by the way. Hint, hint.

Sean: Yeah, and even for places that aren’t local in your community, that you do want to support, there’s a really easy way that you can support them while avoiding directing your money to those big online stores. Say that you’re looking for a face mask and you found a little dealer that was either at Walmart or Amazon, somewhere online, and you didn’t really want to spend your money at that shop. Google the name of the company that is listed on that website, find their direct website, and then purchase whatever you’re going to get from them. That way you can ensure that all of your money is going to support a local business and not some mega-corporation that doesn’t need that money anyway.

Liz: That’s a great idea.

Sean: And even beyond spending money, it’s really easy to promote a local business after you have maybe already purchased something or you see something that you like online by sharing it on social media. I’ve seen a lot of people tweet out local businesses, especially as we’re trying to support more black-owned businesses. That’s been one of the key ways that I’ve been able to get connected with local businesses that I want to support that I didn’t even know existed.

Liz: Yeah, those kinds of shoutouts can make a huge difference. And also, you know, the business owner appreciates it.

Sean:   Mm-hmm, and again, it’s free, free marketing, and you’re also making a difference in connecting with your network, too.

Liz: Yeah, and a lot of people right now are dealing with, money is really tight, so they don’t have a lot of extra to spread around, but that’s something that anybody can do to help out.

Sean: And one last thing I wanted to mention for people that are maybe buying takeout. I’ve been getting a decent amount of takeout lately since I can’t go to restaurants. I found that if you order directly from the restaurant, you don’t go through one of those apps that has it delivered to you. That way, you, again, you similarly make sure that all of the money that you’re spending is going directly to that company because, as we know, these apps take a big chunk of what you’re spending and put it in their pockets. And a lot of restaurants don’t even make that much, but they feel like they have to be on these servers to get any business at all. So if you want a pizza or there’s a really good pho place in my neighborhood, we just call them up. And yeah, I have to drive down the street to get the food, but it makes me feel better knowing that I’m supporting them and not some other company.

Liz: Oh, that is huge. I mean, I was using all those apps because they give you free delivery for a while, and I always like free. But then I started reading about how much of the dollar that you spend, they take, and a lot of times, the business is just barely breaking even. That doesn’t really help. So if you really want to help, call them directly.

Sean:  Mm-hmm.

Liz: All right, I think that about covers it, but I would love to hear our listeners’ ideas if they have some for how they support local businesses. So you can email us at podcast@nerdwallet.com or send us a voice memo at the number we’ll say later. We’d love to hear what you think.

Sean: Yeah, please do. I know there’s always new ways to support local businesses, so please let us know what you’re doing so we can all make an impact together. Let’s get to this episode’s money question.

Liz: This episode’s money question is from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?”

Sean: Man, Michelle, that is a really tough place to be in. To help us talk through a few different small loan options on this episode of the podcast, we’re talking with Annie Millerbernd, a Nerd who knows a lot about small loans and ways to fund expenses like this.

Liz: All right, sounds good. Hey, Annie, welcome to the show.

Annie Millerbernd: Glad to be here. Thanks for having me.

Sean: Hey, Annie. Let me set you up here. Our listener Michelle needs to fix her car, but she’s short on cash and her credit is not great right now. She’s thinking of getting a small personal loan to cover the cost, but she’s not sure that is the smartest choice. So to start, can you explain what a small-dollar loan is and how it’s different from other kinds of loans?

Annie: Small-dollar loans are loans typically under $2,500. Usually, they’re a few hundred dollars to a few thousand dollars, and because they have the small amount, banks and reputable online lenders don’t typically offer them ” it’s hard for them to make them profitable. So instead, these payday lenders and unsavory online lenders will fill in the gap, and those lenders typically offer APRs that are super high with short repayment terms that make them difficult to repay on time.

Liz: Those short repayment terms ” talk about what those are and why they’re dangerous.

Annie: The short repayment terms, they can be two weeks, maybe more, maybe less. They’re usually around a month or under for payday lenders. Short repayment terms are risky because they make it difficult for a person to pay that loan back on time. So if you have a combination of a high APR and a short repayment term, you have to pay back a lot of money in a small amount of time. And that’s a difficult thing for a lot of people who need the small amount of money to do, so they end up having to basically get another loan to repay that loan on time.

Sean: And that’s what can create the cycle of debt, because if you had a hard time scrounging up a few hundred bucks for a car repair, chances are, in a few weeks when that loan is due, you’re going to have a hard time paying back that base amount, plus the APR, which can be upwards of 300%, right?

Annie: That’s right. They have exorbitant APRs and, like you said, the short repayment terms make it really difficult to pay back all of that extra money in addition to what you borrowed.

Liz: A lot of these loans don’t require credit checks, and I know some people think that that is a positive. But actually, that can be a negative, right, Annie?

Annie: Right, so if you’re a person who needs a small amount of cash or any amount under a thousand or a couple thousand dollars, you might think that maybe you don’t have great credit or maybe you don’t have any credit at all, and having a lender not look at that would be better for you. But actually, if a lender isn’t checking their credit and income and debt and basically assessing your ability to repay, then they aren’t probably basing the APR that you’re getting on your ability to repay.

Sean: And at the same time, if you want to improve your credit by having on-time payments on your credit report, these loans aren’t going to help you get there. So you’ll be responsible for an expensive loan, and then you also won’t be getting the benefit on your credit report of making on-time payments, so that doesn’t make you any better off at the end, either.

Annie: That’s right.

Liz: So, with all these disadvantages, though, we know a lot of people are in the situation where they don’t have access to, really, any substantial amount of money to take care of an emergency expense.

Sean:  Right, but there are some alternatives to these riskier loans, ways to get some cash. Annie, can you talk about what a few of those might be?

Annie: Credit unions are one of the best options most people have for a small-dollar loan, and there are some requirements around membership for a credit union personal loan. But credit unions offer a small-dollar loan called ‘payday alternative loans,” and they’re far and few between, but these loans typically have amounts of less than $1,000 or $2,000 and they have longer repayment terms ” so one month to six or 12 months and APRs of 28% or lower, so that’s going to be your best option for a small loan. Small-dollar loans aren’t only from payday lenders and deceptive online lenders. That’s a really good option.

Sean:   Mm-hmm.

Liz: And Annie, I know that regulators were trying to get banks into this space to do these smaller dollar loans. Is that actually happening?

Annie: There used to be this suggested rate cap from the FDIC, which is the main regulator for banks, and the rate cap was at 36%. Earlier this year, the FDIC, with other regulators, issued some guidance that omitted that APR cap ” and that really was to encourage banks to start offering small-dollar loans to bring some competition to the small-dollar lending space. And there’s some research that says that banks could be well-positioned to offer these loans at sub-100% APRs while also having that existing consumer relationship where they can assess your ability to repay, and they can report your payments to credit bureaus.

Liz: Yeah, because that’s been the problem with payday loans is the lenders say they have to charge these outrageous amounts of interest because the lending isn’t profitable otherwise. They can’t do the kind of underwriting that a typical lender would do. But your bank already has all the information pretty much it needs to make these loans, right?

Annie: Yes, and banks would struggle to make a 36% APR on a $400 loan profitable. That’s not probably realistic is what some of the research says, so we’re looking at $50 to $60 on a $400 loan with a three-month repayment term which, according to some key research, consumers think would be a fair loan, and it is an APR of less than 100% that the bank can still make profitable.

Liz: OK. One of the things Michelle said is that her car is still drivable, which tells me that she has some time, so that if she does want to check out the credit union option, she has time to go online, to look for a credit union where she could be a member to sign up. She can do all those things and get a loan. That’s kind of different from an emergency situation where you need the money right now.

Sean: Annie, are there any other alternatives you think besides credit union loans that people should be aware of?

Annie: Yes. If you can borrow from a friend or family member, that’s going to be one of the safest options. Of course, it doesn’t help you build credit. But it is a way to ensure that you understand the terms of the loan and you have the opportunity to build in interest or whatever terms you and that person would like to. Of course, you’re securing it with your relationship with that person and if you don’t repay, you might get yourself in a tough spot in a personal matter.

Sean:  Yeah. One really interesting idea for funding small dollar amounts are lending circles. So if you get together with maybe a dozen or so people in your local community and you each put in, let’s say like a hundred dollars every two weeks, and then at the end of the month, one person gets that pot of money and then you do it again next month and then you rotate who gets the money so that eventually everyone gets that pot of money. So, back to Michelle, let’s say Michelle doesn’t really have any options to get money from friends or family or a lending circle. I’m wondering what you think are the best ways to get a loan when you don’t have a great credit score?

Annie: Well, if you don’t have a great credit score, there are reputable online lenders that pair their product to bad- and fair-credit borrowers. These lenders might have higher APRs, but they do tend to stick to the 36% or lower range, which is helpful for consumers who are trying to build credit and want a reasonable repayment term. They typically have one year or longer repayment terms, so those are one of the better options if you don’t feel like you can turn to a bank or credit union for that kind of loan.

Another alternative would be to add a co-signer to your loan. Some banks and online lenders let people add co-signers, which is a person who has maybe a better credit profile, less debt and a higher income. And if you add a co-signer, not only could you get a loan that you might not otherwise qualify for, you might even get reasonable rates and a higher loan amount. The downside of adding a co-signer is that that person is essentially on the hook for the loan if you can’t repay it, and so their credit is also on the line when they co-sign your loan.

Sean:   Is there one of these that you think would maybe be the best option or does it depend on your own individual circumstances?

Annie: It really depends on your individual circumstances. I would say if you can find a co-signer and the lender that you’re working with allows co-signers, that’s a really good option if you and the person you have that relationship with are both comfortable with it. You can also do a secured loan, which is typically using your car, certificate of deposit or your savings account. And those are good options, but you have to weigh the benefit of getting the loan with the potential cost of losing whatever it is you’re securing the loan with.

Liz: Yeah, you don’t want to put your car up as collateral if you need that car to get to work ” that could be a disaster.

Annie: Definitely.

Sean:   One thing that seems like a really big draw with these loans is that people can get them fast, right, so I’m wondering, how fast exactly people could expect to get this money from the time they apply to the time the money is in their account?

Annie: That really varies. It depends on the lender you’re working with. It depends on if you’re using a bank, online lender, a community bank or a credit union. Some banks will say that they can do a loan the same day that you apply for it ” they could fund it as soon as the same day or the next business day, but more often I’ve seen it where large national banks will take a few days and up to a week. With online lenders, you have the option of fast funding often, so reputable online lenders pride themselves on being able to fund a loan really quickly after you apply for it, and you may pay for that with a higher rate. So be sure to compare your options between banks and online lenders and credit unions to find the lowest rate, and then determine whether the fast funding option is a priority.

Sean:  OK, so I have one final question for you: Besides the obvious pitfall of potentially entering a cycle of debt if you get a really expensive loan, are there any other things you think that Michelle should be looking out for?

Annie: One of the things that she should look out for is her credit. Just be sure that wherever she’s looking for this loan, her credit will either come out the other side better, or at least not worse. If you get a loan from a reputable lender that does report your payments to credit bureaus, then what you’re doing is you’re getting your credit in better shape so that next time you have to turn to a personal loan or a credit card or some other credit product, you’re better positioned to get a lower rate. And the expense is a really important factor because even if your credit isn’t involved, if you get a very expensive loan and you end up having to repay that very quickly, you could slip into the cycle of debt that we talked about earlier.

Liz: Well, that was super helpful, Annie. Thank you for joining us today.

Annie: Thanks for having me.

Liz: With that, let’s get to our takeaway tips. First, explore your options. If you need cash in a pinch, ask family and friends before taking out a small-dollar loan. If you do need a loan, see what your local credit union offers, since they’ll likely have the best rates.

Sean: Next, if you have bad credit, understand your options. You might qualify for a loan, but it will likely have a higher interest rate. In that case, look into potentially co-signing with a trusted friend or family member, or look at a secured loan.

Liz: Finally, know the risks of small-dollar loans. Some, like payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.

Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373, that’s (901) 730-NERD. You can also email us at podcast@nerdwallet.com and visit nerdwallet.com/podcast for more info on this episode, and of course, remember to subscribe, rate and review us wherever you’re getting this podcast.

Liz: And here’s our brief disclaimer thoughtfully crafted by NerdWallet’s legal team: Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.

Sean: And with that said, until next time, turn to the Nerds.

 

More From NerdWallet

6 Emergency Loans: Where to Get a Fast Loan How to Take a High-Interest Loan and Skip the Debt Cycle How to Take a High-Interest Loan and Skip the Debt Cycle

Liz Weston is a writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

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Bad Credit

Are Buy Now, Pay Later Apps Better Than a Credit Card?

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You might think BNPL saves you money and time, but it can cost you big if you’re not careful.

If you’ve noticed a lot more “buy now, pay later” apps popping up when you check out with online retailers, it’s because they’ve become increasingly popular.

This comes as no surprise when you consider how younger generations are hesitant to use credit cards. According to a new study on buy now, pay later (BNPL) apps done by The Ascent, 67% of millennials don’t have a credit card. For some, that’s because they can’t get approved, and others prefer to avoid credit. Many don’t think it makes sense to use a credit card for small, everyday purchases and are worried about the impact of credit cards on their credit scores.

Which one is better: BNPL apps or credit cards? The answer, as you might expect, is: It depends.

Better for ease of approval: Buy now, pay later

One of the main draws of BNPL apps is that they typically don’t require credit approval, and most don’t even involve a hard pull on your credit report.

This is good news for folks with bad credit or no credit at all, and it’s helpful for anyone who wants to keep credit inquiries to a minimum. Having multiple new inquiries on your credit report in a short period of time — and credit card applications are considered an inquiry — can cause your credit score to drop.

Shopping with an online retailer and paying with a BNPL app at checkout is certainly convenient. It means you don’t have to fill out a lengthy application and wait to see if you’re approved. However, just because it’s easy doesn’t mean it’s a wise choice.

Better for improving your credit score: Credit cards

Using a credit card regularly and paying it off in full and on time each month is one of the best ways to build credit. Of course, credit cards don’t inherently improve your credit — responsible credit card usage does. Late payments and delinquent accounts can completely wreck your credit score. And, as discussed above, the credit card application itself can ding your score slightly.

Many BNPL apps, on the other hand, don’t report on-time payments to the credit bureaus. This means you won’t get credit for them — pun intended. On the other hand, any failure to make your payments can be reported to the credit bureaus and damage your score.

Credit cards have the potential to either help or hurt your credit depending on how you use them. In contrast, a lot of BNPL apps only have the potential to drag down your score if you fail to pay off your balance.

Better for avoiding interest: It depends

Every BNPL option has its own set of terms and conditions, so it’s important to read the fine print before making a decision. Some come with an interest-free period, while others charge interest rates of up to 30%. You typically won’t be charged any fees to use a BNPL service if you take advantage of an interest-free promotion and pay off your full balance within the interest-free period and on time. That said, most of these services do charge late fees and returned payment fees if you don’t have sufficient funds in your bank account to make one of your scheduled payments.

The decision between a BNPL app and a credit card comes down to interest, so you should know the interest rate on your credit card. You can find that information on your monthly statement. If the BNPL app you’re considering charges interest, compare the rate to what your credit card would charge. In either case, you’ll likely pay a premium to put the purchase on credit, as the interest rates on credit cards and BNPL apps are extremely high.

Often, BNPL apps will offer an interest-free period, which is what can make them so enticing. A typical interest-free offer will break up the total cost of your purchase into four installments, asking you to pay 25% of the purchase price up-front and then make the remaining three payments every two weeks.

If you do this, you’ll have six weeks to pay off the purchase and won’t have to pay any interest. This makes it a slightly better deal than a credit card, which typically has a grace period of 21 days, or three weeks, before interest is assessed on a purchase.

However, if you miss a single payment or fail to pay off the full purchase by the end of the interest-free period, even if you only have a few dollars left to pay off, you could be in for a rude awakening. BNPL interest rates are typically far higher than those charged by credit cards. Some even charge what’s called “deferred interest,” meaning interest accumulates on the original purchase price, not the remaining balance. What’s more, some of these services charge late fees as a percentage of the original purchase value, which can be very costly.

In other words, BNPL services can save you money on interest, but they can also cost you a lot more if you’re not careful. They also give you a very short period of time to pay off your purchase interest-free, especially when compared to 0% intro APR credit cards with 18-month introductory periods.

Better for big purchases: Credit cards

Most BNPL apps are meant for smaller items — think a few hundred dollars — rather than major purchases. If you’re looking to finance something in the thousands of dollars range, you might have trouble finding a BNPL app that will help you out. Credit cards tend to come with higher credit limits, especially if you have good credit and a decent income.

That being said, financing an expensive purchase on a credit card is typically not a good idea either, due to the high interest rates. The only time you should consider putting a big-ticket item on credit is when you can take advantage of a good 0% intro APR credit card. Even then you need to be certain you can pay off the balance before the introductory period ends. Otherwise, you’ll end up getting slammed with massive interest fees.

Saving enough money to pay up-front is almost always the best way to pay

In most cases, the best way to pay for a purchase is to save up the money first and buy it outright. This ensures you’ll avoid interest fees, debt, and potential credit damage.

This isn’t always possible, but it is a best practice you should exercise for any non-essential purchases. Instead of swiping your credit card or using a BNPL app, open a free savings account specifically for that goal and transfer money into it once each week. Wait until you have enough money saved to buy the item you’ve had your eye on.

It won’t get you instant gratification, but it also won’t cause you to stress about making your payments or land you in debt. And that is priceless.

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It’s never too early to monitor your kid’s identity

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As children return to school, security experts want parents to add one more thing to their yearly checklist – safeguarding their child’s identity.

Monday is Child Identity Theft Awareness Day.

“This is a huge problem that frankly no one is aware of if they’re not paying attention to it, because it feels like an adult crime and it couldn’t possibly happen to a child, but it does,” said Eva Velasquez, President and CEO of Identity Theft Resource Center.

Recent studies show over 1 million children are impacted each year, with losses over $2.6 billion.

This year, new government programs for COVID-19 relief have created new vulnerabilities.

Children are prime targets because thieves can use their credentials to build credit history over time, then take out loans, open credit cards and max them out.

It can take months or even years for parents to realize their kids now have bad credit.

“The detection methods adults use just by engaging in the outside world, those aren’t there for children and the thieves realize that and they know it can go undetected for long periods of time,” said Velasquez.

The center says it’s never too early to start monitoring your child’s identity.

Teach them cyber safety as they get older and watch for red flags.

If you get something in the mail for your kid that looks like it should be for adult, don’t write it off as a mistake.

The biggest recommendation is to freeze your child’s credit. It won’t solve everything, but it will significantly lower risks.

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4 Signs of a Online Loan Scam

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Over the years, complaints about online loan scams are fortunately decreasing, thanks to warnings about loan scams and more reputable online lenders surfacing nowadays. However, even though the number of people getting scammed is steadily decreasing, the amount of money these scams are getting is still massive.

A report made by the Federal Trade Commission stated that consumers had lost about $905 million back in 2017, which is significantly higher than 2016’s $63 million. The FTC has made general guidelines about online scams through credited education, awareness programs, and even enforcement. However, even with all that, consumers are still losing millions through these fraudulent activities.

Typically, financial scammers primarily prey on people who have been previously denied a loan and desperately need money. For people like them, the need to borrow money is stronger than the urge to be vigilant about the loan they are applying for, making them easy prey for online loan scams. Even then, we need to be vigilant. That said, here are some signs you should watch out for to see if you are applying for an online loan scam.

No Credit Check

Now, don’t get us wrong. Not all lenders who don’t look at your credit history are scammers. Some alternative lenders are more interested in your income or profits (if you are running a business) rather than your credit history or merely running online loans for people with bad credit.

However, that doesn’t mean that you don’t have to be vigilant when encountering a lender that doesn’t require a credit check. If you base your decision on whether it’s a scam or not, merely seeing if they do a credit check is wrong.

It is essential to take note that most reputable lenders do a credit check. This is important to them because it helps them determine if you are a risky borrower or not. On the other hand, fraudulent loans aren’t even interested if you can pay the loan. They relish the fact that the borrower can’t repay the debt to incur more fees and penalties upon the borrower.

Upfront Fees

Some lenders will make you pay money in advance before doing any service. This is a red flag. The lender will disguise these as application fees or introduction fees.

Some even disguise these fees as document fees for them to process your application. It’s like them saying you need to send them money first before sending you money for the loan, which is 100% a scam if you ask us.

It is important to remember that any penalties, application fees, and whatnot will be rolled into repayment, or the principal cost when you get approved for the loan.

Unregistered Lender in Your State

All personal loan companies or any financial companies must be registered to the state they operate in. Their registration must pass through the State Attorney General’s Office, which will help the state monitor its businesses. This is applicable even if they operate online.

Online loan scams will typically say they are out of the state’s reach because they are online or a foreign company, which is what a scammer would say. If they operate outside of the state laws, they might be lending money illegally, or it’s an outright scam. When you find one, you can report them to the authorities to prevent these lenders from scamming other people.

If you aren’t sure whether they are legal, you can always check the State Attorney General’s Office if there are some complaints made about them. This might take time, but remember, we are talking about your money here. What is a week of waiting compared to you losing money over a scam?

They Demand a Credit Card

Under no circumstances will a lender or any other legitimate financial institutions demand your credit card or a photocopy of your credit card. If a lender asks for your credit card, it is a scam. They will typically say it is for insurance or some other excuse.

Legitimate financial companies will ask for a payment for the credit report, appraisal, or application, but those charges will be forwarded to your loan, not to your credit card. This is a popular way for scammers to get your money since credit from your credit card is virtually untraceable by the authorities. You also can’t report it to them because you voluntarily gave it to the scammers.

Remember to never give away your credit card or your credit card information to anybody, no matter how legitimate they sound or for any purposes. Doing so will rack you up tons of debt that you may never pay for for the rest of your life.

Takeaway

Online loan scams are still prevalent, even though the cases are steadily decreasing over time. Always be vigilant, especially if your money is at stake. Never give these scammers a chance to get any of your info, no matter how insignificant it is, especially your credit card information. Keep safe.

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