About one-third of American households, according to a survey from the Federal Reserve, don’t have $500 in their savings account. Because we live in a car-centric societyhave your car suddenly broken may cause great financial difficulties. If a car is in one of these households need repairand without enough cash to cover the work, there are only limited ways to cover those costs. ONE string of bad luck could send many people in this country into a downward spiral of debt.
This New video from Vox helps shed light on all the ways a car repair person could theoretically do it, as well as the pros and cons of each.
Six ways to borrow $500 for a simple auto repair and six different outcomes that depend heavily on each situation.
If you want to avoid the institutional debt trap, you can sell an asset to offset costs, like a gaming console or wedding ring. Or you can borrow from a friend or family member, hopefully at a low (or no) interest rate. Of course, these methods depend on whether you have property to sell or have acquaintances with money and philanthropy.
If you absolutely have to go into debt to pay for repairs, hopefully you can rely on credit cards or bank loans to make ends meet. These will come with an interest rate, often quite high, and require you to add another monthly payment to your budget. They also often aren’t possible or come with predatory interest rates if you have a poor credit history.
The third group of practices commonly used to cover an unexpected $500 expense should be avoided if possible, although practices often faced with this choice do not have any other options. If your bank allows it, you could put your checking account into overdraft, which comes with high transaction fees. Perhaps the worst and most predatory way to pay what is owed is a payday loan. Short-term loans are compounded every two weeks, adding up to a 400% APR. Avoid at all costs.
Now imagine that the car breaks down and the driver has to buy something else. Now we’re talking about an even bigger debt to even more predatory lenders. This is how people end up signing a deal for $88 per week with buy here pay for a 1992 Toyota Corolla. This is how the American financial system continues to crush workers The country’s poor turned to dust and tried to squeeze blood from the rocks.
Can anything be done? Damn, I hope so.
