Title Loans Are the Only Option for Some
Points covered below:
· What is a title loan?
· Who do title loans help?
· What is the risk of a title loan?
Can you imagine what life would be like without access to financial services? I mean know I wouldn’t have been able to afford my house without the help of a mortgage. Many people wouldn’t be trained for their careers if they didn’t have the help of financial services to pay for their college tuition, like who has $40,000 in the bank at eighteen years old?
Financial services have always been there to provide us with support to improve our lifestyles.
To qualify for a loan from a traditional bank, you need to have good credit and make a decent income. These loans are not easily accessible and the people who need them the most are often denied.
Title loans and other alternative financial services have served as a backup solution for people with low incomes when they need it the most. Unfortunately, the US has mandated some new laws in certain states making these title loans harder to come by.
What Is a Title Loan?
A car title loan is essentially a collateral loan that allows borrower to use their vehicle title to secure a loan. Collateral is a fancy way of saying that the company has something to sell in case you don’t pay (learn more).
The reason why these loans are sought out among people with lower incomes (and those in financial distress) is that they don’t require a credit check and they can be used for smaller amounts, such as $100. If you are in a financial emergency, the last thing you need someone to point out to you is that your credit score is low.
Why Are Title Loans Risky?
The reason the government wants to limit the amount of title loan services around is because of the insanely high-interest rates. They have very high annual interest rates and the borrower usually pays back more than what they were lent in the first place.
Even if the borrower manages to pay their loan back in a short time, they are still hit with an interest charge. If they are in a situation where they have to borrow a few hundred dollars to get by, then adding an extra hundred or two in interest charges will really hurt a borrower who is already financially struggling.
Title loans can become a vicious cycle once a borrower is locked into the loan. Eventually, the borrower will get to the point where they are borrowing to pay back interest charges from previous loans. The loan companies are making a high profit at the expense of someone who needs help. All that said, I can understand why the government chose to limit the number of alternate financial services per state.
What Is the New Law Regarding Alternate Financial Services?
In July 2020, a new zoning law took effect in some US states that prohibit any 2 alternate financial services to be within 2,500 ft of one another. This goes into effect with the hopes of limiting the number of people that get caught in the trap of continuously borrowing from high-interest lenders.
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A lot of alternate financial services that rely on sucking people into this circle of continuously borrowing are now forced to shut their doors since there can only be a certain number per region.
How Does This Help People Who Rely on Title Loans?
Has the limitation of title loan services improved the lifestyle of people relying on them or will it create more financial stress?
The plan is to stop companies like this from taking advantage of the people who rely on them. Although they can temporarily help a person who is financially struggling to get out of a jam, it ends up costing the borrower way more than it should.
Why Do We Need More Financial Assistance for Low-Income Borrowers?
Did you know that worldwide there is an estimated average of 2.5 billion working adults that are excluded from financial services?
How are they supposed to get out of the trap of borrowing from title loan lenders? In order to stop this trap, there needs to be a plan of “how to help” in place, or else limiting the number of financial services is only going to result in longer line-ups for people who are caught in the borrowing trap.
Having more financial services for low-income households will not only benefit the person who receives it, but also the economy. Here are a few of the reasons why:
Economic growth
More money in their pockets means more money being spent in the economy. It’s as simple as that. One small example of this is if people have money to spend on groceries, that means more shoppers in the grocery store, the store earns more money, and can eventually afford to hire a new employee. This creates a new job to keep money flowing in the society.
Productivity
Having financial assistance available to put towards educational resources and training programs helps prepare low-income people for higher-paying careers. This sets them on a path to continuously put money back into the economy.
Healthcare
Millions of people are still without proper healthcare. Putting money into financing affordable healthcare can help prevent many low-income families from going into debt due to health concerns.
Final Thoughts
Breaking the cycle of borrowing to pay back what you borrowed is a tricky trap to get out of. Financial assistance for low-income earners could have a positive effect on the economy because they can use this assistance not only to create a better life for themselves but also put themselves on a path where they make more money and continuously put some back into the economy.
What are your thoughts on the new limitations of title loans and other alternative financial services? Let us know in the comments.
