This article was first published in NerdWallet.com.
Welcome to NerdWallet’s SmartMoney podcast, where we give you your real cash questions.
This week’s episode begins with a discussion on how to help local small businesses, which have been far more affected by the pandemic than giant online grocery shopping sites. One way is to look for local resources for products you might otherwise buy at the online megastore. Another is to order directly from local restaurants instead of employing delivery apps. If cash is limited, a social media scream or five-star review can help others notice local gems.
Then we move on to Michelle’s office this week. She says: “I was recently placed on a wing hanger that left the back of my car quite messy. It’s still rolling, but one of the doors doesn’t open and a window is broken. I still don’t have enough cash to cover the repair. I think I have a small loan, but I don’t have much credit. What do you think would be the smartest thing I could do?
[insert here the built-in soundcloud player]
Watch this episode on one of those platforms:
Many other people are not prepared for unforeseen expenses, which adds car repairs. If they don’t have savings or smart credit, a so-called “small loan” would possibly seem like a smart choice.
Small loans are usually $2,500 or less. Reputable banks, credit unions, and online lenders sometimes don’t provide such small loans, so others turn to payday lenders or nasty online businesses. Interest rates can be incredibly high and you may only have days or weeks to repay the loan, increasing your chances of renewing the loan or borrowing elsewhere to repay it. This is called a debt trap.
Some credit unions offer “alternative payday loans” that allow others to borrow small amounts at moderate interest rates. Borrowers can settle the balance within 6 to 12 months, reducing the chances of borrowing again.
Michelle’s car can still drive, so you may have time to save the money you need. Otherwise, you have time to check with local credit unions to see if any of them offer those loans of choice. A co-payer can also simply get a loan at a moderate interest rate, or it can also look for lenders willing to provide secured loans (non-public subsidized loans through an asset, such as a car or a space) at a moderate rate.
Explore your options. You may want to borrow from your local credit union or the circle of family and friends.
Bad credits equal higher rates. If your credits are not excellent, you may get advantages from a reduced interest rate by obtaining a co-payer or a subsidized secured loan through an asset you own, such as a space or car.
Know the risks. Some small loans, which add payday loans, can generate astronomically high interest rates, which can lead to a debt cycle.
Do you have any money? Text us or call us at 901-730-6373. Or you can email us at [email protected]. To pay attention to past episodes, return to the podcast home page.
Liz Weston: Welcome to the NerdWallet Smart Money podcast, where we answer your questions about non-public finances and feel a little smarter about what you do with your money. I’m Liz Weston.
Sean Pyles: And I’m Sean Pyles. As always, please send us your questions about the money, call us or text us at the nerd hotline at (901) 730-6373, i.e. (901) 703-NERD, or email us at [email protected]. I am continually inspired by the knowledge and intelligence of all your questions, so feel free to continue with them and we will continue to answer them.
Liz: Also, press this subscription button if you need more Nerdy benefits delivered to you on your device every Monday. And if you like what you’re listening, leave us a comment. In this episode, Sean and I communicated about low-value loans, their uses, hazards, and alternatives. But first, in our This Week and Your Money segment, we communicate how to help local businesses stay afloat in the pandemic.
Sean: It’s something I’ve been thinking about since the pandemic started and everything stopped. First, as I said a few weeks ago, I was doing impulsive shopping and looking for how I could make it more productive for my local economy and helping small businesses. But what made me think about this recently was that there was an article I read in the New York Times that revealed that a third of all small businesses in New York would never reopen. That was according to a report through Partnership for New York City, a business organization. It’s amazing if you think about the number of local retail outlets you go through an excellent indoor floor or a cup of coffee or clothing for your child; all that allow you to meet the owners and rely on their special products. A third of them are heartbreaking, and there are things we can do to make sure some of them survive.
Liz: And one of the things you think about is which corporations you need to be able to get through when it’s all over. Maybe they’re the ones you’re aiming at. But overall, your local economy will be stronger, the more money you can spend locally. When you spend on local businesses, most of the cash stays in your network and helps the other people you know, and it also helps you because companies survive.
Sean: Okay, and then they finish paying taxes and go to your city government, and it’s helping pave the streets and keep the lighting fixtures on the road, and let your bridges serve as they should. . All those vital things, and again, the local is where it can have the maximum impact, whether it’s on an election or an economy.
Liz: I recently wrote a column after interviewing the behavioral economist, Dan Ariely, and he and his colleagues are doing anything that I think is great. There are 50 in the lab where they work, and they necessarily decide on a local business and both one and both a week earn $100. And it’s $5,000, which wouldn’t be a drop in the bucket at the branches, but it could be enough to manage a small place. And I mean, you don’t have to do that by spending $100 on both one and one and both a week. But if you can communicate with some of your colleagues or friends and neighbors, and decide on another company or other local business for a week and put in cash, you may stay with them until the end of the pandemic.
Sean: I love this concept because that way you make sure to inject cash into your local economy, helping a small business in your area. I discovered a way to do it that’s not so expensive for other people who probably wouldn’t have $100 to spend. One solution was a type of deferred payment gift card option in which you buy a $10 gift card for a friend at a local store, then you inspire it to do the same for someone else, and $10 is enough where you can get anything small, like a succulent from your local plant store or a mask at a local craft shop. And then someone else can do it too. So you continue with other small businesses while connecting with your friends, which is very complicated to do right now. Therefore, it is a beneficial solution for everyone in other areas.
Liz: That’s a wonderful idea. Another thing I like to do is move to our farmers market, and not just because there are celebrities there, I live in Los Angeles, that’s part of that. Sometimes crushing a paparazzi is the first indication that someone noticed his condition next to me. But anyway, farmers markets, of course, are all local farmers; it’s money, again, what remains in your community. And you have a tendency to have, at least the ones I’ve been in, there’s a fairly wide variety of products you can buy. It’s not just food. They can be crafts, clothes, so it’s anything to check.
Sean: Yes. I think one thing that has literally helped me look to do local shopping is to think about all the new things we want to buy in this pandemic economy, like hand sanitizer or masks, and then think about how local businesses have adapted to satisfy one’s desires. Obviously, other people know that in Portland we have tons of breweries and distilleries and that we literally can’t get through there like we used to. But many of them make a hand sanitizer now that you can buy them, so even if I don’t go to my favorite brewery for a beer like I would have done maybe 12 months later, I can get hand sanitizer from them. In this way, I respond to a wish I have while supporting a company that I know I want to support, but which I cannot do what I want.
Liz: It’s great.
Sean: Yes, and they come in bottles of alcohol, which makes it even more fun in some way.
Liz: Oh, I like it, I love it.
Sean: Yes, yes.
Liz: And it’s a wonderful gift, by the way. Index, track.
Sean: Yes, and even for the localities in your community that you want to help, there’s a very undeniable way to help them while avoiding directing your cash to those online branches. Let’s say you’re looking for a face mask and discovered a small store that was at Walmart or Amazon, somewhere online, and didn’t really want to spend your cash in that store. Google the indexed company call on this online page, search for your online page directly, and then buy everything you’ll get from them. This way, you can make sure that all your cash will help a local company and not a mega-enterprise that doesn’t want that cash anyway.
Liz: That’s an idea.
Sean: And even beyond spending money, it’s easy to advertise a local business after you may have already bought something or seen something you like online by sharing it on social media. I’ve noticed that many other people tweet from local businesses, especially since we’re looking for more black-owned businesses. This is one of the most important tactics I have been able to apply with the local companies I need and didn’t even know existed.
Liz: Yes, that kind of screaming can make a big difference. And also, you know, the business owner appreciates it.
Sean: Mm-hmm, and again, is relaxed and relaxed marketing, and it also makes a difference when connecting to your network.
Liz: Yes, and many other people are dealing right now, cash is scarce, so they don’t have much more to distribute, however, it’s anything anyone can do to help.
Sean: And one last thing I wanted to mention for other people who might buy takeout. I have been getting a decent amount of takeout in the last few years as I can’t move into a restaurant. I found out that if you order directly in the restaurant, you don’t go through any of those apps that gave it to you. In this way, again, it is secured in the same way as all the cash you spend passes directly into this business because, as we know, those programs take a giant component of what you spend and put it in your pockets. And a lot of restaurants don’t even make that much, but they feel they have to be on those servers to do business. So if you need a pizza or if there’s a very smart position to do pho in my neighborhood, we just call them. And yes, I have to drive down the street to get food, but it feels smart to know that I’m them and not another company.
Liz: Oh, that’s huge. I mean, I used all those apps because they’ll offer you loose shipments for a while, and I still like loose shipments. But then I started reading about the percentage of the dollar they spend, they take, and the company reaches a bit of a balance point. Actually, it doesn’t help. So, if you really need to help, call them directly.
Sean: Mm-hmm.
Liz: All right, I think it covers that, however, I’d like to hear from our listeners if they have any information on how local businesses operate. So you can email us at [email protected] or send us a voice note to the number we’ll give you later. We’d like to hear from you.
Sean: Yes, please. I know there are new tactics to help local businesses. Please tell us what you are doing so that we can all make an effect together. Let’s move on to the effective factor of this episode.
Liz: The cash consultation in this episode comes from Michelle. She says: “I was recently placed on a wing hanger that left the back of my car quite messy. It’s still rolling, but one of the doors doesn’t open and a window is broken. I still don’t have enough cash to cover the repair. I think I have a little loan, but I don’t have much credit. What do you think would be the smartest thing I could do? “
Sean: Dude, Michelle, it’s a hard position to live. To help us communicate about some small loan features in this episode of the podcast, we contactEd Annie Millerbernd, a nerd who knows a lot about small loans and how to finance expenses like this.
Liz: Okay, that sounds good. Hey, Annie, welcome to the show.
Annie Millerbernd: I’m glad to be here. Thanks for having me.
Sean: Hi, Annie. Let me put you here. Our auditor Michelle has to fix her car, but she doesn’t have cash and her credits aren’t very smart right now. She’s considering getting a small non-public loan to cover the costs, but she’s not sure this is the most productive option. For starters, can you find out what a small loan is and how it differs from other types of loans?
Annie: Small loans are usually loans of less than $2,500. They usually weigh between a few hundred and a few thousand dollars, and because they have a small amount, accredited online banks and lenders do not offer them; it’s hard for them to make a profit. So, instead, those nasty payday lenders and online lenders will fill the void, and those lenders will regularly offer TAP that are much higher with short payment terms that make them difficult to pay on time.
Liz: These brief terms: they communicate what they are and why they are dangerous.
Annie: Short repayment terms can be two weeks, maybe more, maybe less. It’s about a month or less for Payday finalists. Short payment times are difficult because they prevent the user from repaying the loan on time. Therefore, if you have a combination of a higher APR and a short-term refund, you should return a large amount of cash in a short time. And that’s a little tricky for a lot of other people who want some cash, so they end up having to get another loan to repay it on time.
Sean: And that’s what the debt cycle can create, because if you’ve had trouble accumulating a few hundred dollars for car repair, you’ll likely have difficulty paying off that critical amount in a few weeks. amount, plus TAP, which can be more than 300% right?
Annie: That’s right. They have an exorbitant annual percentage rate and, as you said, short payment terms make it difficult to pay all that extra cash in addition to what you borrowed.
Liz: Many of those loans don’t require credit verification, and I know other people think it’s positive. But actually, it can be negative, can’t it, Annie?
Annie: That’s right, so if you’re a user who wants a small amount of cash or less than a thousand or a few thousand dollars, you might think you probably don’t have big credits or that you probably don’t have credits. at all, and the fact that a lender won’t take a look at that would be better for you. But, in fact, if a lender doesn’t verify your credits, source of income, and debts and necessarily evaluates your ability to pay, you probably won’t base the TAP you get on your ability to pay.
Sean: And at the same time, if you need your credits with timely bills on your credit report, those loans may not help you get there. Therefore, you will be guilty of an expensive loan, nor will you get the benefits on your credit report of making invoices on time.
Annie: That’s right.
Liz: However, with all these drawbacks, we know that many other people are in a scenario where they don’t have access to a lot of cash to deal with an emergency expense.
Sean: That’s right, however, there are opportunities for those riskier loans, tactics to get money. Annie, can you tell me about some of those?
Annie: Savings and credit unions are one of the maximum productive characteristics that other people have for a small loan, and there are certain club-related needs on a non-public credit union loan. But credit unions offer a small loan called “alternative payday loans,” and they are very rare; However, those loans have amounts of less than $1,000 or $2000 and their repayment terms are longer, so one month to six or 12 months and an average annual rate of 28% or less, so this will be your maximum productive option for a small loan.
Sean: Mm-hmm.
Liz: And Annie, I know the regulators were looking for the banks in this area to make those little dollar loans. Is that happening?
Annie: There used to be this rate limit advised through the FDIC, which is the main regulator of banks, and the rate limit was 36%. Earlier this year, the FDIC, along with other regulators, issued rules that passed over that CAPG limit, and that was to inspire banks to start lending in small dollars to bring a festival into the small-dollar lending space. And there are studies that indicate that banks would possibly be in a good position to provide those loans at an annual percentage rate of one hundred percent, while this existing customer has appointments where they can assess their ability to pay and can report their bills to credit bureaus.
Liz: Yes, because that’s the challenge with payday loans, it’s that lenders say they have to rate those amounts of outrageous interest because the loan is not otherwise successful. They make the kind of subscription a typical lender would do. But your bank already has almost all the data you want to make the loans, doesn’t it?
Annie: Yes, and banks would have difficulty getting a 36% APR on a $400 loan. It’s probably unrealistic, that’s what some studies say, so we’re between $50 and $60 on a $400 loan with a three-month repayment era that, according to some key studies, consumers think it would be a fair loan, and it’s a TAEG below one hundred percent that the bank can still make money.
Liz: Okay. One of the things Michelle said is that her car still has driver compatibility, which tells me she has a little time, so if she needs to check the credit union option, she has time to go online, to look for a credit union. . where she can simply be a member to register. She can do all those things and get a loan. It’s a little other thing about an emergency where you want cash now.
Sean: Annie, are there other opportunities you think you know about credit union loans?
Annie: Yes. If you can borrow from a friend or member of a family circle, this will be one of the safest options. Of course, it doesn’t help you create credit. But it’s a way to make sure you get the terms of the loan and that you have the opportunity to generate interest or the terms you and that user would like. Of course, it protects you with your appointments with that user and if you don’t return it, you can find yourself in a complicated non-public situation.
Sean: Yes. Loan circles are an attractive concept for financing small amounts. So, if you combine with maybe a dozen other people on your local network and put one in it, say a hundred dollars one and two weeks, and then, at the end of the month, a user gets that jackpot. of cash and then you do it again next month and then you turn the cash around so that, despite both one and both, one and both, one sticks with that cash pot. So, going back to Michelle, let’s say Michelle doesn’t have the option to get cash from the frifinishs, the family circle or a circle of finishes. I wonder what you think are the most productive tactics for getting a loan when you don’t have a smart credit rating.
Annie: Well, if you don’t have a smart credit score, there are reputable online lenders who associate your product with borrowers with bad and fair credits. These lenders may have superior APRGs, however, they tend to stick to diversity of 36% or less, which is useful for consumers looking to create credits and need a moderate pay period. They have repayment terms of one year or more, so they are one of the most productive characteristics if you do not think you can go to a bank or credit union for this type of loan.
Another option would be to charge a co-payer on your loan. Some online banks and lenders allow others to charge co-signers— that is, someone who may have a higher credit profile, fewer debts, and higher incomes. And if you load a co-payer, you can not only get a loan that you may not be entitled to otherwise, but you can also get moderate rates and a higher loan amount. The problem with raising a co-signer is that that user is necessarily responsible for the loan if you can’t settle it, so their credits are also at stake when they co-sign your loan.
Sean: Is there one you think is the most productive option or has your private situation?
Annie: Depends on your private situation. I would say that if you can locate a co-signer and the lender you work with authorizes the co-signers, that’s a very smart choice if you and the user you have those quotes with feel comfortable. You can also make a secured loan, which usually uses your car, certificate of deposit or savings account. And those are smart options, however, you should weigh the merit of getting the loan with the possible cost of wasting everything with what you get the loan.
Liz: Yes, you don’t want to put your car on warranty if you want this car to get to the frames; it may be a disaster.
Annie: Definitely.
Sean: One thing that turns out to be a big draw with those loans is that other people can get them quickly, that’s true, so I wonder how quickly exactly other people may be hoping to get that cash from the moment they apply. at the time of cash. is it in your account?
Annie: In fact, it varies. It depends on the lender you work with. It depends on whether you use a bank, an online lender, a netpaintings bank or a credit union. Some banks will say they can lend the same day you apply; they may fund it the same day or the next business day, but most of the time, I’ve noticed that the big national banks would take a few days and up to a week. With online lenders, you have the ability to temporarily finance, so accredited online lenders are proud to be able to finance a loan very temporarily after you request it, and you can repay it at a higher rate. So, be sure to compare your characteristics between banks and online lenders and credit unions to find the lowest rate, and then find out if the quick financing option is a priority.
Sean: Okay, I have one last question for you: but still, the apparent danger of going into a debt cycle if you get a very expensive loan, are there other things Michelle deserves to look at?
Annie: One of the things you deserve to pay attention to is your credits. Just make sure that wherever you’re looking for this loan, your credits will be higher on the other side, or at least not worse. If you get a loan from a reputable finisher that reports your bills to creditossssss offices, you’ll get higher credits so that the next time you have to resort to a non-public loan or creditossssss card or other creditossssssss, you’ll be better positioned to get a decrease rate. And spfinishing is vital because even if your creditsssss is not involved, if you get a very expensive loan and end up having to repay it very quickly, it can fall into the debt cycle we talked about earlier.
Liz: Well, it’s very useful, Annie. Thanks for coming today.
Annie: Thank you for inviting me.
Liz: Let’s move on to our takeaway tips. First, explore your options. If you want cash, ask your circle of family and friends before applying for a small loan. If you want a loan, check out what your local credit union offers, as you’ll likely have the most productive rates.
Sean: So, if you have bad credit, you’ll feel your options. You may be eligible for a loan, but you will most likely have a higher interest rate. In this case, co-sign with a trusted friend or a member of the family circle, or a secured loan.
Liz: Finally, learn about the dangers of small loans. Some, such as payday loans, can generate astronomically high interest rates, which can lead to a debt cycle.
Sean: And that’s all we have for this episode. Do you have your own cash issue? Call the nerds and call us or text us with your questions at (901) 730-6373, (901) 730-NERD. You can also email us at [email protected] and nerdwallet.com/podcast to learn more about this episode and, of course, be sure to subscribe, rate and compare us anywhere you are.
Liz: And here’s our brief disclaimer conscientiously crafted through NerdWallet’s legal team: your questions are covered through competent and talented monetary editors, but we are not monetary or investment advisors. This Nerdy data is provided for general educational and entertainment purposes and may not apply to your specific situation.
Sean: And that said, until the next time, the Nerds.
More from NerdWallet
Liz Weston is one at NerdWallet. Email: [email protected]. Twitter: @lizweston.
Sean Pyles is a member of NerdWallet. Email: [email protected]. Twitter: @SeanPyles.