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There are some lenders that promote magnificent services that ultimately conceal within the fine print of the loan contracts high fees, costs and interest rates that make the loan’s monthly payments a very heavy burden. These practices known as predatory lending are sometimes prohibited, but these lenders always find a legal way to continue pillaging the borrowers’ budgets.
You’re sure to have seen signs like Quick Cash, Quick Loans, Payday Loans and Car Title Loans around town. Rapidly sprouting up nation-wide, they are likely to soon rival Starbucks for the number of locations.
Predatory Practices
The latest trend in predatory lending practices, quick loans manage to escape regulation in most states. There is no interest, only a fee. It can sound like the ultimate in convenience. For quick cash, just stop by and walk out in five minutes with $100 to $1000. But there’s more to the true cost of the convenience.
Cash advance or payday loan or paycheck loan usually involves a personal check. Some require your bank account or credit card information in addition or in place of a check. You give a check to cash or agree to let the amount be withdrawn from your account in the future, usually 14 days, which is the standard. On completion of the agreement or contract, you get an amount less than the agreed loan amount. This is the fee for the service. But you have your cash.
The reason for the company’s willingness to loan you this money, is due to the fees amounting to a huge profit at your expense. For instance, to borrow $200, the lender charges a fee of $15 per $100. In 14 days you owe $230 for borrowing $200. If this $200 can save you $100 in late fee or penalty, it could be worth it. But if it is money for one day, it’s a high price to pay.
Hidden Interest Rate and Fees
For a 14 day loan, the interest is 15%. In compounded interest yearly, it comes to 3785% which explains the willingness of lenders to loan you money. For a loan of $100, you pay back an extra $15 in two weeks and they again loan out the $100 with the extra $15. Doing this for one year turns their $100 into $3785 by the year-end. It’s enough to make you want to loan your money to them instead of the other way round.
Early repayment fees are charged when you pay off your loan early. If you miss the payment date, there is a late repayment fee. Then some have membership fees to charge you for becoming their customer as well as charging you as their customer.
Don’t give lenders direct debit access to your bank account; handing over your wallet is quicker. Don’t sign any contract if you haven’t read the fine print. Bounced check or debit fees are the reason you should ensure that there is money in your bank account. Collateral could be a car title. If you miss a payment, you may lose your car for good.
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