Millennials Opting for Easier, Costlier Credit — Away from Banks

Millennials Opting for Easier, Costlier Credit -- Away from BanksA new survey of consumers ages 18 to 34, known as “Millennials,” finds that these young people are turning away from banks for easy credit.
And they’re using alternative loan products that are known for exorbitant fees and high interest rates, such as payday loans, check-cashing stores and prepaid cards.
The survey conducted for USA Today by the company Think Finance found that most Millennials use a bank for checking or savings accounts. But nearly half, or 45 percent, say they found alternative sources for easy credit.
These non-bank loan sources are historically known for charging high fees — for example, online check cashing can cost up to 3 percent of the amount of the check. It can cost more, depending on the check-cashing company and the amounts being cashed.
Most prepaid debit cards come with at least a monthly fee. Many of these cards carry other fees, such as charges for checking your account balance or for an ATM withdrawal.
Payday loans, also known as deposit advance loans, are often promoted as a way of avoiding overdraft fees. But nearly two-thirds of payday borrowers overdraft, incurring high fees.
Payday and deposit-advance loans lead to a cycle of indebtedness for many consumers, with “loose lending standards, high costs, and risky loan structures” contributing to a debt trap, according to a recent report by the Consumer Financial Protection Bureau.
The Think Finance survey found that Millennials don’t seem to mind the fees, USA Today reports.
Nearly a quarter cited fewer fees and 13 percent cited more predictable fees as reasons for using alternative products, though convenience and better hours than banks won out over both of those as the top reasons
These products use clever marketing tactics, Mitch Weiss, a professor in personal finance at the University of Hartford in Hartford, Conn., and a contributor to consumer site Credit.com, told USA Today.
“The way they approach the business is, we’re not charging you interest we just charge you a fee,” he said. “When you think fee, your reaction is it’s a one-time thing.”
A Bankrate.com survey in April found that banks are trying to catching up to these alternative lenders. Bankrate found that five major banks started offering prepaid cards in the past year — Wells Fargo, PNC, Regions Bank, JP Morgan Chase and U.S. Bank.
The prepaid cards are becoming more popular as free checking accounts become fewer. The Bankrate survey found that just 39 percent of banks offer free checking, down from 76 percent in 2009.

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