We might be living in a strong economy right now, but employees are financially stressed because 78% are living paycheck-to-paycheck. And, they don’t have a lot of viable credit options when they need “extra” money for a household emergency, an unexpected healthcare bill or other expenses that aren’t in their monthly budget.
Since 58% of Americans don’t even have $1,000 in savings, how can they cover unexpected expenses? High-interest credit cards, payday loans or rent-to-own contracts might look like lifelines. But while many of the available alternatives create a ‘buyer beware’ situation, employees who are struggling financially just don’t have a lot of viable credit options.
The hidden costs and fees associated with high-risk credit options can take a financially fragile situation and make it worse. Borrowing from a 401K and other retirement savings not only jeopardizes long-term savings, but can incur penalties, taxes and high interest on repayment as well.
Other financing alternatives come with baggage also:
1. Credit cards: Even consumers with a shaky financial history can 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, only making 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.
2. Rent to own: With rent-to-own products, there’s a monthly principal amount plus service fees and taxes for a period of time until the rental agreement is completed and the item is then owned outright. The problem is that renters can end up paying as much as three times the retail value of an item before satisfying the terms for ownership.
3. Payday/Title loans: Essentially, these loans function as a loan against a future paycheck or the consumer’s vehicle. They often come with high percentage rates and fees, as well as extremely short repayment schedules.
4. Banking overdrafts: If a recent purchase or payment drops the consumer’s 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.
A better option is to provide an employee purchase program like Purchasing Power, which offers all-inclusive pricing that covers the actual product, value-added features such as extended warranties and accessories, shipping and handling fees and any applicable taxes. Employees will know the cost up front. A 6- or 12-month payroll deduction program helps ensure they won’t miss a payment. There’s no credit check, zero interest and no hidden fees, and the automatic deduction ensures employees don’t face the consequences of missed payments.
Read more about the alternatives available here.