Alternative Financial Service Providers
Knowing the benefits and risks of products, services, and providers can help you make decisions that are right for you and your family. This fact sheet provides some basic information about alternative financial service providers.
Check Cashers
Benefits
- Allows you to cash your paycheck if you are unable to open an account at a bank or credit union
- Fees are clearly stated
- Convenient locations and hours
- Requires less identification than a bank or credit union
Risks
- More expensive than using a bank or credit union. Cashing checks is usually free if you have an account.
- Does not give you a documented banking history
- Gives you all of your money in cash, which could create safety concerns
Tax Refund Advance
Benefits
- Receive at least part of your tax refund as soon as you file your taxes with no up-front fees
Risks
- You must pay back the refund advance to the tax preparer and this transfer involves a significant fee
- If the refund is less than the advance, you are responsible for paying the balance to the tax preparer
Rent-to-Own
Benefits
- Allows you to have things that you want before you have the money to pay for them
- Payments are spread over weeks—this may make it easier to afford the payments because each payment is small compared to the overall cost of the item
- There are rarely credit checks performed in order to purchase the item
Risks
- The item is typically priced much higher than if you were to purchase it in a store
- You will incur fees for paying the item off over time, making it much more expensive than if you had saved your money and bought it with cash
Pawn Shops
Benefits
- Provides you with cash in exchange for an item that you own that has value
- No credit check is involved in the transaction
- Once you repay the loan, you get your item back
Risks
- You can only borrow a part of the value of the item that you are pawning
- Loans tend to have very high interest rates and fees
- If you are not able to pay the loan back, the pawn shop keeps and tries to sell your item to cover the cost of the loan
Car Title Loans
Benefits
- You can get money that you need quickly
- Your credit history is not a factor in receiving the loan
- Interest rates are very high
Risks
- You must own the car outright (be in possession of the title) in order to qualify for the loan
- You can only borrow a percentage of what the lender thinks your car is worth
- If you do not pay back the loan, the lender can take your vehicle
Payday Loans and Other Small Dollar Loans
Benefits
- Gives you the money you need the same day you apply
- You do not need a credit check to apply
Risks
- High fees and interest rates
- Loans can be hard to pay back in the 2 -4 weeks generally given
- People often rollover or renew their loans because of this
- If you cannot pay them back, they may use aggressive collection tactics