Money Monday: Finding Funding Fun

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When you have to make a financial decision about purchasing or acquiring some asset, the question is always how are we going to pay for the item or how will it be funded? For most people the options are limited to the usual suspects such as their bank, credit union or unknown third party lender. But how do you know who to use and which is best? Finding the money to purchase your asset really depends on what you are buying. For example, you can find money from all three aforementioned options to purchase a vehicle, but where you should begin and who offers the best option depends of what you need.

Can You Bank on It?

Banks can be classified into at least two categories such as big banks and community banks.When looking for money to purchase an asset, you should know that community banks offer more personalized services. Also, they are known and managed by those who live in the community. I can personally appreciate a community bank because they consider more than credit scores and data in making loans. Banking officials at community banks may consider your discretionary spending and family history in determining whether or not to provide loans. Traditional, or big banks, examine data and make lending decisions primarily on the numbers. Therefore, if you are seeking to obtain a mortgage or line of credit for home repairs, would you not want to pursue a local or community bank option first instead of a traditional bank?

Banks can also be divided into the traditional brick and mortar ones verses online banks. If you need to earn money from your savings then traditional banks are no longer the way forward. Online banks now lead in the payment of higher interest rates on your savings. One study found that traditional banks are not paying higher interest rates because consumers do not pay attention to savings accounts after opening them with regards to earnings. In other words, why should traditional banks pay higher interest on savings when customers do not seem to care? The study also found that because big banks offer more benefits or services than smaller banks, consumers are willing to settle for lower interest rates on their savings in exchange for those benefits.

Give Some Credit to Credit Unions

At first glance it would appear that banks and credit unions provide the same service, so that it doesn’t make a difference which you choose. However, if you consider the fundamental organizational and operational structure of each it may provide guidance on your financial decisions.

Fundamental point one is that banks are in business to make a profit, and are for-profit institutions. However, credit unions are nonprofit institutions.What that means for you is that a credit union is not focused on generating profits for its shareholders as banks are. Instead profits from a credit union are placed back into the organization for the benefit of its members. Consequently, a credit union can provide lower interest rates when you are seeing financing for a vehicle loan. It can also explain why credit union fees would be less than banks and other lending institutions. Credit unions are run by boards composed of community members and are concerned with serving its mission and members. Banks, on the other hand, care about profits! I would add that credit unions are less likely to collapse than banks in general. Banks, because of their profit-driven goals, take greater risk than credit unions when it comes to making financial decisions. So if you are looking for money to finance a project or purchase an asset, credit union options are a great source for what you need.

Alternative Money

Alternative money, or money from a third party, even non-traditional source is generally always available for whatever your monetary needs may be. However, the main issues of concern are the cost of the money and ownership of the asset. Many people focus on the interest rate they are paying when financing a car note for example. While knowing and being concerned about interest rates is important, I would suggest that knowing the cost of the money you are borrowing is equally, if not more, important. What I mean is the relationship and difference between the interest rate you are going to pay and the Annual Percentage Rate(APR). Because consumers with poor or low credit are denied obtaining money from traditional sources, they are faced with higher APR’s when trying to find money to acquire assets. Is there money out there for what you need?

Absolutely! The key is identifying the best source based upon your need and not think that one source can work best for you simply because you have a relationship with them and it’s convenient.

Alternative sources of acquiring money for what you need play a significant and devastating role in the black community. Why? According to a Federal Deposit Insurance Corporation (FDIC) report issued in 2023, 40% of black people in America are either unbanked or underbanked. Unbanked means that they do not have a bank account.  However, being under-banked means that some have a bank account, but rely on payday loans, check cashing institutions and others to fund their asset acquisition.

Simply put, more than one-third of black Americans are locked out and excluded from the system. This one-third of black people in the U.S. have no other option but to pay higher interest rates to purchase assets.

From my perspective there are potentially three ways address this problem. The first has to be through financial literacy. The next way to address this gap is to encourage a banking relationship with minority-owned or black-owned banks. These institutions provide more flexibility,  are community oriented, and designed to address the dispositions of those locked out of the system. Finally, I see this as an opportunity where faith-based organizations and structures could develop institutions and systems to aid the least, the lost and the left behind.

WHAT’S UP!

Today’s What’s Up is about ending a banking relationship . If you are thinking about leaving your bank for another one, what are some process considerations? You should open the account at the new bank before closing the old account; you should ensure that all automatic deposit and payments have cleared the old account before closing it, and you should contact and connect with all your service providers like streaming services and provide them with the new information and allowing for a 30-45 days translation period before closing accounts. And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2024. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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