Avoid the circling vultures during your next ’emergency’

I’ve recently noticed a strange thing while reading through all my past posts. I mostly write about fine-tuning and twisting the dials to live as efficiently as possible, while focusing on overall happiness. However there are some elephants in the room that I really need to address.

I have written about topics ranging from the cost of commuting to Maslow’s Hierarchy of Needs. Yet I have completely missed one of the most basic topics that should be obvious.

You don’t bloody spend money you don’t yet have.

However obvious this may seem, it still seems to elude a lot of people.

Can you blame them? The advertising and normalisation of using borrowed money has been a systematic campaign by those who would profit for years, if not decades.

Personal loans, credit cards, car financing. These are all so common and we are constantly bombarded by the advertising. My bank even regularly sends me personally addressed, unsolicited credit card offers.

My current focus on this topic started when I came across a few adverts that I kept seeing often enough to become enormously irritating. I am talking about the short-term online loan market. You’ve seen the adverts from such dubious-sounding suppliers as Nimble or Wallet Wizard (I won’t link to them because I do not want to give them more online link backs). Even with my sparse TV using habit, I’ve seen them on multiple occasions.

I honestly believed that they were a fad that would just blow over after a few weeks once Australian society collectively ignored them as a useless product that no one actually needs. However, not only have these ads stuck around, but they seem to becoming increasingly common. This suggests that they are in fact a profitable business venture.

How can this be?

Alas, as seems to be happening very often these days, I was completely wrong in my judgement. Let’s call it naivety.

While writing about fine-tuning, I have forgotten that there are many that are still fending and fighting off the rats and golems as they climb themselves out of the sewers of financial hardship.

The advertising for these short-term lenders has been enough to make me genuinely sick.

Often portraying an emergency situation, such as needing a flight to be with your pregnant wife while she is giving birth or accidentally putting a hole in your rentals wall while you are moving out, the loans are marketed as a way to deal with life’s emergencies and not necessarily a way to consume even more.

So analogous to my first point is the following;

You keep enough cash around to handle life’s emergencies without paying through the nose for a loan to do so.

This seems obvious to me, but clearly I am out of touch with financial norms.

Many might also be keen to pipe up and say that it is easy for me to say because I have a high income and can afford life’s emergencies.

…but here is the key. If you are on such a low income that you are just barely scraping by and can’t afford to save an emergency fund, then you also can’t afford to make loan repayments! 

In fact it is even more important for low income earners to build themselves up an emergency fund, as they can’t quickly earn the amount needed to cover an emergency.

So it makes no sense for anyone to ever need these services with just a bit of prior preparation.

These loans appeal to both the most careless with their money but also to the most vulnerable members of our society, and for that reason they draw my ire.

But what truly made my blood boil was the truly deplorable fee structure underpinning these loans.

The below is for Nimble at the time of writing (14/01/18):

For loans between $300 and $2000: 20% of the principal upfront and 4% per month compounded monthly!

And

For loans between $2001 and $5000: $400 upfront and 47.6158% pa

The world has truly gone mad if these products are actually being sold at these outrageous prices.

They are made to draw unreasonable profits from those that can least afford it.

I feel absolutely fine in calling out these businesses for this deplorable product that they are offering in a predatory fashion. I say predatory because the fees charged in no way reflect the amount it actually costs to offer this service and instead reflect the maximum amount the government will allow them to charge. I know this because before the government stepped in they charged even more!

The second reason that these suppliers irk me so is that they aim to drastically reduce the friction in attaining these disgusting products.

Loans were once a long and tedious process that involved physically going to the bank, filling out a form and waiting several days for the bank to assess your suitability.

However now you can apply online and have the money in your account within a few hours, making them far too easy an option for people who need money quick.

If you are just starting to get your finances in order – perhaps you have just discovered the financial independence movement and have yet to save your emergency fund – then the following options may exist to you instead of one of these outrageous loans:

  • Centrelink cash advance, for those on centrelink payments;
  • Sell down some of the worthless crap you have accumulated;
  • Speak with utility companies about hardship payment policies;
  • Speak with your lender about a hardship variation.

If you do not yet have an emergency fund or easy access to liquid money such as an offset account, then that is an emergency that needs to be sorted out immediately.

Never give your money to these predators. There is no shortage of people out there that will seek to profit during your next emergency.

I will try to leave it at that.

Shuffling through rats and golems

Pat the Shuffler

14 Replies to “Avoid the circling vultures during your next ’emergency’”

  1. I absolutely hate those companies as well and have noticed of late a massive increase in the exact ads you describe. At first I scoffed and thought them silly, now I realise this ridiculous marketing strategy is actually working. I wish the government could do more to stop these vultures!

    1. The government has done all it can. The problem with this industry is that if the profits for companies are too low there won’t be any companies and people will have to hit up family members, the mafia or resort to crime to get the funds they need. The way things are with these companies is — in the eyes of the government — the lesser of two evils. And as far as I know they don’t send anyone around to break your legs if you don’t pay!

      1. Chris

        I take your point about the lesser of two evils, we however don’t have any information on the profitability of these products. I am asserting that they are grossly profitable and could be far cheaper while maintaining profits. I have no hard data to back this up unfortunately as I will never have access to the companies books.

        However I did provide evidence that they will charge whatever they can get away with. (hence the lowering of the price when the government stepped in).

  2. These guys remind me of the weight loss industry… surely this entire industry doesn’t even need to exist! You simply eat less kilojoules than you burn off each day and like magic you lose weight. There’s no secret alchemy to it and certainly no need to pay a premium for it. You can do it really easily for free.

    Exactly the same with money — simply spend less than you make and you’ll never run into problems. But just because something’s simple doesn’t make it easy. I feel sorry for anyone who struggles with this… which unfortunately seems like the vast majority of people I know.

    1. Just reading that makes me chuckle a little. It really is that simple, and yet people everywhere have problems with it.

      I have long wondered about the similarity between keeping a healthy weight and keeping financially healthy. They do say that there is a correlation between socioeconomic status and obesity rates. I wonder if it is caused, as many seem to suggest by “not having the same access to healthy food options and education” or it may in fact be correlated because the same people that have problems with the self control required to save money also have problems with the self control needed to not get into trouble with their weight. I don’t think it is like this all the time but perhaps it may be a possible explanation for the statistical significant difference.

      I am no researcher or scientist so can’t say, but definitely would like to know more about it.

  3. I agree. Although people have a personal responsibility to manage their finances, I still feel these companies are targeting the vulnerable. Shame that each loan doesn’t come with compulsory financial counselling.

  4. The balancing act of libertarianism and providing government safety nets is a tough one. I don’t think that any country has it right or can have it absolutely right. In either case someone will be worse off.

    In general I am in favour of libertarian values, so support your statement about personal responsibility. . The alternative is a wider safety net but also a wider set of controls for the government to decide what you can and can’t do with your money.

    I would like more financial education so there are less and less people that find themselves in these situation, but I do not support greater government controls.

    1. It’s not really that simple re government versus personal freedom/responsibility as presumably encompassed in the ideas if libertarianism. In ‘real’ life we as individuals are not only faced with the ‘monolith’ of government but also with those of corporations. In theory we elect governments but not corporations. I’d rather take my chances with hopefully democratic governments than unquestionably totalitarian corporations. It’s complex, but one could certainly argue that libertarianism is one of those ideological constructs that serves as a Trojan horse to undermine our collective trust in ourselves as expressed through democratic government action to the benefit of corporate interests which have the resources to buy the best ‘democracy’ their money can pay for.

  5. If you ever take out one of these loans, you need an exit strategy (sale of asset, leave payout from employer etc). Rolling over this type of finance for the long term will only ever lead to bankruptcy.

    These types of lenders are not evil. They provide a last resort service to the community. The interest seems high and is high compared to other lending options. However given the likely bad debts from this demographic, I doubt that these businesses are making squillions. If they didn’t provide this service, people could not get the basics they need (food, shelter etc) and would resort to crime.

    1. I tend to agree that their is a much higher likelihood of bad debt, hence the interest rate has to be much higher to account for that reality. I just don’t know if having it as high as it is is justified. In a market with proper competition you would not expect all the competitors to be offering the same price service that just happens to be equal to the maximum the government will allow.

  6. “My bank even regularly sends me personally addressed, unsolicited credit card offers.”

    I’ve never had any debt and can’t believe how normal it is in Australia – I don’t see any of these ads you’ve mentioned because I don’t watch commercial TV and I use adblockers (they’re free!). I was with 2 of the major banks and told them both that if they ever sent me any more mail about credit cards or housing loans again I would cancel my account because
    1) Terrible environmental waste (actual cards, glossy paper – the works)
    2) I wasn’t interested now and I won’t be interested in the future

    Westpac sent me more mail about credit cards and I closed my account within the week.

    I recommend everyone gives their bank the same ultimatum.

  7. Yes I was always educating people in may area of more than the advance payment for centrelink, the NILS is a way to empower people to obtain whitegoods for example and lots of other stuff without paying the interest rate charged by payday lenders, or getting too caught up in rent to buy companies. I for one bought a car through a scheme called NABStepUP which is a microfinance co-operative through Good Shepherd, a community provider and NAB and there was a budget to go through to make sure you could afford it. It enabled me to get a decent reliable car for $3000 at 3.99% instead of saving up a measly amount to buy a bomb. I cut my main internet off at the time to manage upkeep of car as I had bugger all work at times, if any. I went to using a prepaid internet wifi one so I could check emails and do job applications etc.

    This car I sold the other year for minimal loss as I had looked after it regularly and it went to someone who needed it as they had a car that was costing too much to keep fixing up. Cost of loan interest was not an issue in my case compared to a normal personal loan and I was not going to have a clunker, as paid $45 a fortnight and had put a lump sum payment of $200 down straight away, paid it off in 2 years and a half, instead of 3 year term. I then gained access to a special AddsUP savings plan account of successfully completing my loan. Which over a certain time period of 6-12 months regularly saving they would match your savings up to $500, so I did that and had $1000 with the matching done, I then used my money to buy some laptops from a school and refurbished them and sold to make a small profit.

    Unfortunately it is very hard for someone on centrelink such as newstart, not the pension, to even save for emergencies even if they do not have habits that burn a hole in their wallet. I like your blog, but I think you would be hard pressed to have lived quite a number of years on an existence payment and still save an emergency fund, you might get to say $650 for a year of saving $25 a fortnight, or you might put more in if you managed to get some random work, as trust me there is not much left after all your expenses. i always saved for my rego, had money going to different bank accounts, I actually saved too much at one point, so had to adjust payments as was not leaving much to live on and I needed a little more to survive. That is where I went to extremes and that is what you have to be careful with, going too far the other way. I lived in an area where there was despair and hopelessness and quite frankly alot of people had given up, I shut myself off from it at times and went in a hole in my shitty unit. I was the one on Friday and saturday nights writing job applications while putting were getting drunk and high.

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