Have you seen that commercial where the guy becomes a superhero for borrowing funds online to fix his broken car? Isn’t it quite disturbing to glamorize the act of going into high interest debt. With just a few clicks of a button, your life supposedly changes for the better, but does it really? Today, payday lenders have moved online to entice a brand new generation to fall for predatory lending practices as reported on bloomberg.com.
Rent-A-Center’s once promised low-income people of color they could rent-to-own luxury items with low easy payments, but by the end of the contract, these folks had paid for a bedroom set 3 times over due to the interest on the original loan.
According to the scholars at Cornell Law School, Predatory Lending is any practice where the borrower is taken advantage of by the lender. They impose lending terms that are unfair or abusive. The financial gurus at Credit Karma advocate for consumers to look out for these 4 troubling signs when borrowing:
The lender hides the Annual Percentage Rate
According to a study by Georgetown Credit Research Center, more than 40% of payday customers believed that the APR of their loans were no more than 30%. In reality, these borrowers were charged a staggering 400%, which is a rate 13 times larger. These firms used deceptive terms to mislead unsuspecting consumers. “You pay $15 per $100 loaned,” sounds like 15% to an unsuspecting borrower, but since the APR is based on 8 days instead of 12 months, the real rate exceeds 800%!
Loan approval is too easy with no credit check
These lenders run a low-risk operation using a borrower’s endorsed check as the loan’s collateral. Customers unable to repay the loan by payday face threats of jail time and high penalties. Therefore, these frightened borrowers agree to pay for costly loan renewals every two weeks until the principal is paid off. According to researchers at mycreditsummit.com, the reality is only 14% of these clients can actually afford to pay back their loans right away and 1 in 4 payday loans are rolled over or flipped 9 times or more.
Loan terms trap borrowers in a quicksand of debt
Unfortunately, many will pay much more than the original loan amount as they get trapped in a vicious debt cycle. Most lenders aren’t interested in 1% of all payday borrowers who take out only 1 loan, repay it within a 2-week period and don’t take out another one in a calendar year. Their best customers are the 91% of borrowers who remain on a debt treadmill taking out 5 or more loans in a year as reported by the CRC.
The lender has a sketchy reputation
Experts at the Center for Responsible Lending report that payday lenders actively engage in the ‘churning’ of customers. A despicable practice which encourages consumers to borrow even larger sums of money. A West Virginia former employee claimed that management even instructed them to urge clients to take out further loans as soon as the next day when the first loan was repaid. Worse still, they prompted customers to borrow the maximum limit whether they requested it or not.
Here are 4 better alternatives for those with short-term cash needs and a low credit score:
Become a temporary Uber or Lyft driver
Becoming a rideshare driver is pretty easy to do. All you need is an insured vehicle and a clean driving history.
Dog – walking or Sitting
If you prefer 4-legged friends over people, Rover.com provides another way to earn some quick cash.
Food Delivery on your own time
Uber Eats, Grub Hub, and Door Dash are just a few of the ways you can earn money quickly by performing a service for others.
Get Paid for your skills
Are you an undiscovered artist, a logo or web designer, or a writer. If so, Upwork, Fiverr, and Freelancer all provide avenues for your to earn some cash.
