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How Consumers Finance Cash Emergencies Depends on Their Available Credit

According to Bankrate’s Financial Security Index, 28 percent of American’s have no money saved for cash emergencies, representing a four percent increase over last year. Despite the fact that financial experts recommend enough savings to cover six months of living expenses, 52 percent of those earning less than $30,000 per year have savings equal to that recommended. Those without an emergency fund often rely on credit to get them through such emergencies, a dangerous solution during times when the economy is unstable.

Creditworthy Consumers

For consumers with good to excellent credit, there are many options available to handle a cash emergency. Signature loans, advances on credit cards, or even home equity lines of credit are options for cash strapped customers to deal with a sudden emergency cash need. Examples of cash emergencies include unexpected medical bills, car repairs or family emergencies that may require long-distance travel that was unexpected. It is important to remember, however, that credit card cash advances and signature loans may come with a higher than normal interest rate, so it is best to pay those off as soon as the cash emergency has been resolved.

Less-Than-Perfect Credit Consumers

For consumers with less-than-perfect credit, the option of a signature loan or credit card advance is less likely. For these consumers, high cost loans, such as payday or title loans may be their only option to deal with a cash emergency. Payday loans offer high interest short-term loans that often require no credit check, the ability to apply for the loan online and often lend money when no other financial organization will. However, the interest rates on the loans is often excessive, sometimes exceeding 400 percent, the repayment time is very short, sometimes only two weeks. Because of the dangers of payday loans, many states have either stopped allowing payday loans or severely restricted their operations. Title loans, which also offer no credit checks and instant approvals, require a free and clear car title as collateral. If you cannot pay the payment as agreed, the lender will repossess the car. Unlike banks who often allow late payments, some title loan companies will repossess a vehicle if payments arrive as little as one day late.

Credit Determines Ability to Handle Cash Emergencies

The credit a consumer has available has a bearing on how a cash emergency is handled. For those with good credit, there are many available options, while for consumers whose credit is poor, dealing with a cash emergency can be difficult. Some people choose to borrow money from either family or friends, while others say they would have to neglect other bills, such as credit cards or mortgage payments, to deal with cash needs. Another option for those with poor credit is selling or pawning valuables in order to obtain the cash they need temporarily.

Having a savings account is the best way to protect yourself against cash emergencies that could require going further into debt or risky loans with excessive interest rates. For those with less-than-perfect credit, the options are very limited should a cash emergency develop.

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