Are All Small-dollar Personal Consumer Installment Loans Bad?
Not according to author and psychotherapist, Dr
. Charles Richards. While economists look at what people are doing with their economic futures, Dr. Richards looks at why we do the things we do, and the psychology of our behaviors regarding money.
Our Relationship with Money
In fact, he calls it our "relationship" with money and explains that it is "an evolutionary process of personal growth and development. Understanding what drives us to take on loans can help us create positive responses and create a better relationship with our finances. It can also help redirect negative behaviors to more positive choices, allowing us to find ways to advance individually and as a society."
From Poverty to Financial Health
According to Dr. Richards, the way from poverty to financial health and freedom is rarely a straight line. It's a meandering course in learned responsibility, goal setting and achievement, and replacing fear and desperation with examination and communication. Often it begins with sitting down with another and really looking at your budget (sometimes for the first time), preferably with a trained specialist who will explain appropriate percentages for each aspect of your budget and help you come to grips with where you are financially.
Financial Education
"Often, organizations have found that people are hesitant to take a financial literacy course. What they have found is that unless they tie the loan directly to the educational process, regardless of the urgency, some people won't show up for the financial literacy classes. It's always good to become better educated in general but what people really want and need is an opportunity to become educated about what they are already interested in-their own personal finances and their credit need.
"They want to become more capable and they want encouragement. Most people don't want government handouts, unless it's a last resort. They do not want to be told that it is better to borrow from family, friends, or their church. More than anything else, they want to stand on their own. They want to learn to become independent and responsible. It is part of the natural process of growth and evolution that we go through as human beings."
We Need to Experience Financial Goal Setting and Achieve Our Goals
Dr. Richards explains, "In this process of learning personal financial freedom, we need to experience goal setting and achieving those goals. That is one of the most important aspects of personal development. Regarding finances, it may mean saving up for something we really want or it may mean borrowing for some goal and repaying the loan. Both work well. We just need to move ahead in life; it is a natural desire and a compelling drive."
Dr. Richards, a North Carolina native who was raised in Greensboro, is clear. He does not promote debt. Far from it. He might even seem an odd character to speak out for the role of the consumer finance industry. Other than a mortgage, he does not have any debt. He very rarely uses a credit card and prefers to use debit cards. He has a successful private practice and various business interests. He is a soft spoken, gentle man with a ready smile, who admits that he has made his share of financial mistakes in the past, like trusting others to watch over his interests. He also says that he has had his share of loans that have enabled him to move forward with his life's goals.
Utilizing Responsible Debt
Although he does not promote debt, what he does promote is the psychological soundness of doing just that-utilizing responsible debt for those situations that he deemed important. "It can allow a person to achieve important goals and feel the pleasure of that achievement. It is an important step, a stage in our evolution toward personal responsibility and financial independence. It is important that we approach debt in a responsible way in order for it to serve us, and to be reasonable with our desires and our goals. It is a relationship, our relationship with money is crucial to advancing our sense of personal self esteem and being responsible citizens."
"Some folks misunderstand this basic premise of debt and promote the concept that all debt is bad," Dr. Richards continues. "But how would most of us in the middle class or below have achieved our goals without loans? How could we have gone to college without debt? Or gotten a car to take us to our first job? Or handled an emergency situation in life? If we understand the psychology of achieving goals we would see that there is nothing inherently wrong with debt as long as the payments are fair and reasonable for both parties."
Small-dollar Personal Installment Loans
And what does reasonable really look like? If you can afford to pay your debts and move forward in life, this is a part of the American dream. And this is a part of what instinctively drives us all toward advancement. The encounter where we sit down with someone and go over our budget is the place where responsible lending must begin. And it is the place where all good small-dollar, personal installment loans begin.
Consumer Installment Lenders Help Create a Budget while Face-to-face
Consumer installment loan companies have a simple but thorough worksheet to help examine a person's financial picture. They help create a budget while face-to-face with a client. They sit down and get to know the person in front of them, one on one. They learn about the person's circumstances, their lifestyle, their work history, and then examine that individual's needs and budget with them. Perhaps that is why they have such a high success rate of repayment-in a timely fashion. Like local community banks of old, they understand their clients, they live in the same community with them and they spend enough time with an individual to make a good decision about a loan. They do the necessary research and make assessments based on a true budget and plan that works for the individual.
Moving Our Country Forward Economically
Loans from reputable agencies are historically an important aspect of personal advancement and economic growth and stability in our country. If we understand Dr. Richard's point, it is a warning to those who might wish to legislate the consumer loan industry out of existence. At a time when the country needs to have money flowing within all aspects of the population, when we want to increase fiscal responsibility and move forward economically, there is a grave danger in lumping all loans into one negative category. And if we make it impossible for the consumer loan agencies to operate and make a reasonable profit, we do our country harm.
Small-dollar Installment Loan Industry-Serving a Valuable Role in our Society
The small-dollar consumer installment loan industry is seeking to make sure that it is not confused with other financial products out there. Historically, this industry is perhaps 100 years old, and a solid citizen serving a valuable role in our society, while offering a financial product that makes sense. When we listen to what the individuals have to say who use these services, we understand that there are thousands of people who otherwise may not have been able to survive a difficult situation, or those who have been able to achieve important goals, or move forward in their lives. For them, this is an important resource-a valuable choice they have made for themselves and their families.
Looking Squarely at Our Finances
Consumer installment loan agencies actually are the little sister to big banks and operate with appropriate regulations and consumer protection guidelines. Because the agencies only make a profit when a loan is paid off, they tend to be selective in their clientele. Although they try to serve those who come through their doors, they must carefully consider an individual's budget and ability to pay. That careful consideration of one's individual finances, according to Dr. Richards, "is an important part of personal evolution. Looking squarely at what we can or cannot afford-and learning to pay a little at a time for what helps us advance-is a great step toward healthy psychological growth. It opens the door for communication and growing awareness and that can be an important and positive step."
An Important Option for Americans
For those who do not qualify for a consumer installment loan, there are options, including financial counseling and government subsidized programs, which are also important parts of the financial landscape-but clearly should not be the only options available. But options are not always easily accessible and the biggest concern is that people may make decisions that are inappropriate both for their immediate needs and long term financial health. Therefore, the ability of the consumer loan industry to grow and continue to make small personal installment loans is also critical. Making reasonable, responsible loans to those who qualify is a valuable service in our economy and very important to our country's financial health.
Consumer Installment Lenders-Doing a Good Job of Financing America's Needs
You need a new furnace and you need it now. You need to keep the lights on or your child needs medicine or something important for school. The bank is not going to give you that loan. And unless you qualify for government assistance, that is the role of the consumer installment loan companies. Based on their positive track record overall, they are apparently doing a good job of financing America's needs, one loan at a time. When non-profit consumer counseling agencies are asked what brings people to them, what their complaints are, it is almost never a loan from the consumer installment loan industry. They are able to lay claim to one of the highest levels of consumer satisfaction rates and are proud to be helping Americans with their financial needs.
Allowing Commerce to Continue
Traditionally, banks and the consumer loan industry have existed to serve those who qualify and wish to move forward in their lives and meet their immediate needs. That is a tradition we need to protect and perpetuate rather than lumping all loans together and declaring them as bad by their very nature. Right now banks are being very tight with their money in a response to the financial crisis we are in. There are those who insist that banks must loosen up and allow commerce to continue, or we will all suffer in the process. And if the consumer loan industry is not able to make small loans to people in the communities where they exist, it will be to the detriment of both the individuals and our economy.
The First Choice for Small-dollar Loans
But here's the issue. For the consumer loan industry to stay solid, they need to make some changes. Perhaps they need to charge a higher rate of interest on the first thousand dollars they lend, or on smaller loans. That interest is paid back a little bit at a time in an installment plan that makes sense for the individual, and of course there is no penalty for early payoff. The loans are based on a careful review of budget and ability to pay. That is naturally a first step toward personal financial responsibility. It is imperative that the consumer loan industry exist and continue to serve their communities and promote themselves as a first choice for small-dollar personal loans.
With a solid hundred year history in this country, the consumer loan industry remains a great resource for responsible people who want to move forward in their lives, address emergency situations, or enjoy a piece of the American dream. When people feel they have to rely on the reluctant good graces of others, or are forced to jump though impossible hoops-they become desperate. Dr. Richards sees the ill effects of this cycle: "This can destroy self esteem and a sense of personal responsibility. Worse yet, if we make it nearly impossible for people to get a legitimate loan for their emergencies or moving forward in life, it becomes detrimental for our society." Clearly, consumer installment loans can play an important role in our financial evolution.
Let's Keep What Works
As Dr. Richards explains, "Let's keep what works. When life is being met head-on, finances are being carefully examined, goals are being achieved and self esteem is enhanced-that's a good thing."
by: Dr. Charles Richards
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