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The unbanked choose not to use banks due to insufficient earnings or distrust. They rely on check cashing businesses or prepaid cards and avoid bank fees, but may struggle to obtain loans.
The unbanked are simply people who choose not to keep their money stored in a bank account. These people typically don’t use checks to pay bills and often rely on alternative approaches to manage their financial lives. People choose to avoid banks for a wide variety of reasons, including insufficient earnings and a general distrust of financial institutions. There are some disadvantages to living outside of banking systems, but some people believe that it may be a more practical way of life for certain people.
Many of the unbanked are people who don’t make a lot of money at their jobs. They may be spending almost all of their funds on expenses each week, so they don’t really have any money left to deposit. Sometimes people fall into this way of life gradually. Initially, they might use a bank sparingly before becoming totally unbanked. People who are transitioning between these two stages are sometimes referred to as “underbankers.”
One of the ways that the unbanked operate is by relying on check cashing businesses. Some of these are independent companies that specialize in this, while others, such as large department stores, offer it in addition to other primary business focuses. The fees charged for this type of check cashing tend to be significantly higher than is typical at a bank, but there is no need for any type of account with these institutions, and some people want to cash checks with no strings attached.
Another common approach for the unbanked is to purchase prepaid cards that can be used to purchase items online or pay bills. This is often used as a replacement for the more traditional approach of writing checks or using a bank debit card. The cards are often sold pre-loaded with a certain amount of money, and a fee will be included in the purchase. This is usually more expensive than paying interest on a regular credit card, but these cards are generally much easier to obtain.
One of the advantages of being unbanked is the ability to avoid all the fees that banks often apply. People are sometimes caught off guard by overdraft fees, for example, and may feel like their banks are cheating them with fees that aren’t sufficiently explained. Although going unbanked can cost more money, all of that money goes out in advance, so the person doesn’t have to worry about losing more funds than anticipated. Working outside of the banking system also has some disadvantages, including more difficulty in obtaining loans.
Smart Asset.
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