Lenders use abusive or unfair practices to trap low income into a never-ending cycle of debt.  Learn to spot the scams:

The goal of a predatory loan (such as payday loans) is to trap the borrower in a nightmare of never-ending debt. The lenders know that no one is watching or, in some cases, cares that the poor are preyed upon by these unscrupulous lenders. Those lenders hope that their schemes to keep the poor paying outrageous interest rates, which forces them to take out more payday loans. There are a few states taking action – see State Payday Loan Reform from Pew Charitable Trusts, a nonprofit public interest group.

The following are highlights from an article by Annie Millerbernd of Nerd Wallet, November 19, 2019

Five signs of a predatory loan:

1. No Credit Check Ads.  The lenders make it as easy a possible for the unwary borrower to get trapped in the never-ending loan cycle.
2. Focus on Monthly Payments. Like a magician trying to distract you – the lender advertises low monthly payments but hides the length of the loan or very, very high-interest rates.
3. Sky-High Rates.   A bad lender is one that hides the interest rate on its website or advertisement. They hope to distract you by flashing signs and soothing language offering to solve all your problems (I call this the drug dealer’s promise).  There are reports of interest rates 300% to 700%. For instance, if you borrow $10, you have to repay $50.
4. Excessively Long or Short Repayment Periods.   Many predatory loans result in the borrower paying more than they originally borrowed (sometimes as much at 5-7 times more).
5. All-in-one Payment Requirements.  According to Alex Horowitz, a senior research office with Pew Charitable Trusts, “the average payday loan takes 36% of a borrower’s paycheck.” If the borrower cannot make the payment (few ever can), they take another loan to pay the first loan – the cycle goes on for years until the borrower finally sells their only vehicle to pay the debt or files bankruptcy.

MUSINGS FROM DIANE:

Desperate people do desperate things.  Some rob to feed their family.  Others gamble their entire paycheck with the hopes of winning enough to pay the mortgage.  What most don’t do is ask for help or seek informed advice from those who care.