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Fast-Cash Predatory Lending - what you need to know

Consumers with fair to poor credit are sometimes cornered into risky loans using their paychecks and sometimes even their cars as collateral.

Consumers with shaky credit can borrow money more easily than one would think, whether or not they are even in the position to repay the loan.  According to Stephens, Inc., a Little Rock investment Bank, there are now some 24,200 pay-day loan storefronts, up from 18,000 only three years ago.

Here’s how a payday loan works – the consumer writes a post-dated check against his or her next pay (usually the loan is good for two weeks).  Sounds great, right?  Wrong, the fees are outrageous.  Sometimes up to 25% interest, just to borrow money for 14 days.  When the loans are due if you can’t pay, there is another fee to renew the debt for another two weeks.  Eventually, (and not very long after you take out the original loan), the interest rate could way exceed the amount of original loan.  This will make it very difficult for the loan to be paid.  Thus an ongoing vicious cycle of paying someone to pay someone to pay someone.  Not very logical.  But unfortunately, something that many consumers have had first hand experience with.

There are some payday loan companies that will also take the title of your car as collateral (with a duplicate car key as well, of course).  These places have very high interest rates as well.  If you don’t pay the loan back, you could lose your car, making a person unable to get to work.

Payday and car-title lenders can usually be found in low-income neighborhoods.  Congress recently slapped a 36% interest rate cap on loans made out to the military members.  However, everyone else is left to pay interest rates some can exceed 700%, says CFA’s Fox.

These loans are very predatory towards lower income families, and have caused a lot of pain and suffering.  Many families have been cornered into using this “fast cash” for other bills, and then find themselves unable to pay the “fast cash” on time, making things even harder than they first started out with.

Mortgages with interest rates that sky-rocket after a few years, are probably the most toxic and make the most headlines.  Typically, these types of home mortgages are given to consumers whose credit scores are below 620.  However, those are the very people least able to handle monthly payments that suddenly double or triple.

When will the government stop these predatory lending practices???


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