Loans Can be Easier to Understand Than Overdraft
For a long time short-term cash loans were seen to be shady, dangerous and something to avoid. In some ways, those views were justified, there were a lot of dodgy companies operating under shady self-imposed rules that were used to exploit customers, rather than provide them with a helpful service.
Research coming out of America suggests that as an industry, short term cash advance loans are doing very well at making overdrafts look like cryptic crossword puzzles.
Please note, that this study was conducted in the States, so not everything about it can be translated to the New Zealand market:
As well as being confusing, the study conducted by FDIC Study of Bank Overdraft Programmes found that banks are using less than savoury tactics to get people into overdraft. Some banks are displaying account information on ATMs after funds have been drawn that take the customer into negative balance, and increasing the likelihood of a customer’s account falling into insufficient funds by clearing larger checks before smaller ones paid out by a customer at the same time.
The study also found that some banks were automatically subscribing customers to overdraft insurance without the account holder’s knowledge.
In addition to this, a study conducted by the US Literacy Study found that when respondents had to rank their own financial comprehension 42% gave themselves a ‘D’. This is probably why banks are being sneaky with their procedures and taking advantage of their unknowing customers.
This kind of activity is found to be in stark contrast to the practises of some of reputable short term loan companies. Short term loan companies have all their fees and rates set out for potential customers to see before they sign any kind of contract.
The same may be true about companies in New Zealand. Lending companies are bound under the Credit Contract and Consumer Finance Act which stipulates that every fee, interest rate and payment method needs to be spelled out in plain English for every credit contract issued by any provider.
It seems that on the whole, customers of no credit check short term loans can be a lot more clued up on what they are getting into than those using an overdraft system at a bank. A study conducted by George Washington University found that in 2009 out of 1,173 borrowers of short term cash loans, 50% of those surveys researched other credit alternatives before taking out a short term cash loan. 80% of those surveyed didn’t have the funds to meet their needs and chose a short term cash loan to avoid hefty unarranged overdraft fees.
These studies point out the changing trend in short term finance. No longer are small cash loans the most dangerous and expensive way to get money quickly. They have become a service that is up-front, transparent and affordable.