According to trends being reported in the past few weeks, the amount of personal loans being taken out by consumers has dropped sharply. Yet, as fewer consumers borrow personal loans, the cash advance industry is growing and thriving. Why is one loan product decreasing at the same time that another, similar loan type is increasing? As traditional financial institutions tighten their belts while trying to ride out the shaky economy, a personal line of credit is becoming increasingly difficult for the average consumer to obtain. Instead of trying to win over a bank or credit union, more consumers are turning to payday lenders, since there is no credit check on a cash advance loan.
The Economy as Creator of Financial Change
So the economy could well be the impetus for a growth in one financial arena, the check-cashing and payday loan industry, while blamed for the cutbacks in the area of personal lending by traditional financial institutions. More people are willing to put up with the high interest rates that payday lenders charge in order to obtain a small loan (typically $500-$1500) that can help them pay off the same kind of expenses that a personal loan would pay. However, as lawmakers determine whether or not to place a cap on interest rates on payday loans, the cash advance industry could soon be facing the same belt-tightening that banks and credit unions are experiencing. Opponents of the reforms say that an interest rate cap would severely cut back profits; indeed, payday lenders have already cut back stores in two states where reforms have already taken place. So what do all of these potential problems mean for the average consumer?
Do You Need Extra Cash?
If you are in need of extra cash, you should know that now is not the best time to do a little loan shopping. While you might have gotten several bites about 5 years ago, it is actually quite difficult to get a loan from anyone today. If you need a small amount to cover an emergency expense and your credit history is not exactly stellar, then perhaps a cash advance would work best. If you need a large amount of money to cover a single large purchase, such as home remodeling or repair, and assuming you have a better than average FICO score, then a personal loan might be the best choice for your situation. No matter what your situation, only borrow as much as you can afford to pay back in a reasonable amount of time; otherwise you could find yourself drowning in personal loans and debt.