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An alternative financial service (AFS) is a
financial service Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, ...
provided outside traditional
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Becau ...
institutions, on which many low-income individuals depend. In developing countries, these services often take the form of microfinance. In developed countries, the services may be similar to those provided by banks and include
payday loan A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
s, rent-to-own agreements, pawnshops,
refund anticipation loan Refund anticipation loan (RAL) is a short-term consumer loan in the United States provided by a third party against an expected tax refund for the duration it takes the tax authority to pay the refund. The loan term was usually about two to three ...
s, some subprime mortgage loans and car title loans, and non-bank check cashing, money orders, and money transfers. It also includes traditional moneylending by door-to-door collection. In
New York City New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the Un ...
, these are called check-cashing stores, and they are legally exempted from the 25 percent criminal
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
cap. Alternative financial services are typically provided by non-bank financial institutions, although
person-to-person lending Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. Peer-to-peer lending companies often offer their services online, and ...
and
crowd funding Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over was raised worldwide by crow ...
also play a role. These alternative financial service providers are estimated to process about 280 million transactions per year, representing roughly $78 billion in revenue. Customers include the
unbanked The unbanked are adults who do not have their own bank accounts. Along with the underbanked, they may rely on alternative financial services for their financial needs, where these are available. Causes Some reasons a person might not have a bank ...
.
Alternative financial services in the United States Alternative financial services in the United States refers to a particular type of financial service, namely subprime or near-prime lending (that is, lending to people with relatively poor credit) by non-bank financial institutions. This branch of ...
, for example via
payday loans A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
, are more extensive than in some other countries, because the major banks in the U.S. are less willing to lend to people with marginal credit ratings than their counter parties in many other countries. In the United Kingdom, alternative financial services include
payday loans A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
and money lending, the latter termed "home collected credit", "home credit" or "doorstep loans". Organizations such as Debt on our Doorstep campaign for improved regulation.


See also

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Poverty industry The terms poverty industry or poverty business refer to a wide range of money-making activities that attract a large portion of their business from the poor. Businesses in the poverty industry often include payday loan centers, pawnshops, rent-to ...
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Loan shark A loan shark is a person who offers loans at extremely high interest rates, has strict terms of collection upon failure, and generally operates outside the law. Description Because loan sharks operate mostly illegally, they cannot reasonably ...
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Overdraft protection An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...
loans *
Payday loan A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a short-term unsecured loan, often characterized by high interest rates. The term "payday" in payday loan refers to ...
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Refund anticipation loan Refund anticipation loan (RAL) is a short-term consumer loan in the United States provided by a third party against an expected tax refund for the duration it takes the tax authority to pay the refund. The loan term was usually about two to three ...
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Settlement (finance) Settlement is the "final step in the transfer of ownership involving the physical exchange of securities or payment". After settlement, the obligations of all the parties have been discharged and the transaction is considered complete. In the co ...
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Title loan A title loan (also known as a car title loan) is a type of secured loan where borrowers can use their vehicle title as collateral. Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender th ...
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Usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
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Mortgage discrimination Mortgage discrimination or ''mortgage lending discrimination'' is the practice of banks, governments or other lending institutions denying loans to one or more groups of people primarily on the basis of race, ethnic origin, sex or religion. Instan ...
* Securitization * Debt bondage * Debt of developing countries *
Informal value transfer system An informal value transfer system (IVTS) is any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the s ...
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Guarantor loan A guarantor loan is a type of unsecured loan that requires a guarantor to co-sign the credit agreement. A guarantor is a person who agrees to repay the borrower’s debt should the borrower default on agreed repayments. The guarantor is often a fa ...


References

Financial services Microfinance {{finance-stub