With nearly six in 10 Americans lacking the savings to cover a $500 or $1,000 unplanned expense according to a January 2017 Bankrate survey, it’s important to be credit-educated and to understand hidden costs and fees associated with high-risk credit options.
Considering most financing options available to employees during unavoidable financial emergencies, you can be assured as broker that when you encourage clients to offer Purchasing Power as a voluntary benefit that their employees will have access to a smart credit option. For the most part, rent-to-own, payday loans and installment loans are extremely costly options. And only making minimum payments on credit cards results in a higher costing purchase when factoring in interest.
Cash is always king, of course, and is the best option for avoiding fees and missed payments. However, understanding the options when cash is not available can help ensure making the best choice to meet short-term needs without compromising long-term finances. Our employee purchase program is a better option. It’s a cost-effective, financially responsible way to purchase.
Here’s a summary of the various financing options:
Credit cards: Even with a shaky financial history, consumers can typically find a creditor willing to offer a line of credit, but it will likely come with a steep annual percentage rate that accrues each month. Furthermore, making only the monthly minimum payments and/or missing a payment due date, can result in carrying that debt for years before it’s fully paid down.
Employee purchase programs: Research shows that financial stress at home regularly impacts employee productivity at work. This leads many employers to offer an employee purchase program such as Purchasing Power, which provides products and services through automatic paycheck deductions over a 12-month period. There’s no credit check, zero interest and no hidden fees. There’s also a free financial wellness platform to help with budgeting, credit reports and personal coaching.
Rent to own: With rent-to-own products, there’s a monthly principal amount plus service fees and taxes for a period of time, up to completing the rental agreement and owning the item outright. While the monthly rate makes items like appliances, electronics and furniture immediately accessible, be wary of the long-term cost. Renters can end up paying as much as three times the retail value of an item before satisfying the terms for ownership.
Payday/Title loans: Essentially, these loans function as a loan against a future paycheck or your vehicle. They often come with high percentage rates and fees, as well as extremely short repayment schedules. These loans should be used only if the borrower is certain to be able to cover the entire loan and associated fees by the designated due date.
Banking Overdrafts: If a recent purchase or payment drops your checking/savings account balance below zero, it may still go through – but at a steep price, which can range between $15-$35 per transaction, depending on the bank. Through “convenient” overdraft programs, many banks cover checks, online and debit card transactions, but also charge individual overdraft fees in return. The problem escalates quickly if overdraft transactions continue after the account dips below zero – the bank can charge multiple, expensive overdraft fees in one day.