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Payday Loans - The New Predatory Lenders?

By Edited Aug 19, 2015 0 0

Times are harder than ever, which is why so many people are considering taking out payday loans that would never have dreamed of the idea in years past. You've probably already seen the cheesy commercials that promise consumers hundreds of dollars in exchange for a handful of post dated checks or a car title. Since virtually no one goes into a title loan or pay day loan company of their own accord it is a wonder that these types of predatory lenders are able to stay in business at all.

Financial planners and economic experts have a habit of lecturing people on the woes of using short term lending services. The fact is, there are emergencies, life changes and extenuating circumstances that even the most prepared person could not possible be able to handle. Of course, most people expect to pay a much higher interest rate, but with the average title loan company charging in excess of 500%, what is really in it for consumers? If taking out a pay day loan is the difference between paying your rent and being homeless, there really isn't a choice at all. All in all, you will be hard pressed to find a person that truly believes that payday loans actually pay off in the long run.

When your back is against the wall it is not reasonable to tell the client of a pay day loan company that he or she should have saved more diligently. Due to the fact that it is a recession, many hardworking and responsible people have gone through their savings, borrowed from every friend and relative on their contact lists and maxed out their credit cards. Few of these consumers have anything to show for it besides damaged credit reports and a big fat pile of debt. Banks and credit card companies are tightly regulated, but the truly ironic fact is that these very same institutions are the ones that help to fund pay day loan companies.

In order for a title loan company to enter into contracts with desperate consumer it must first have access to enough cash to write the checks. These companies are able to get loans at low interest rates and then lend out the same money to unsuspecting consumers at an exponentially higher rate with the excuse that they have to cover their risks. It is true that a good portion of their customers stop paying on their accounts, but the high interest rates that they charge allow them to recoup their losses and net a healthy profit after only a few payments.

The real question is, why are these pay day loan and title loan companies allowed to charge interest rates that the US government would normally consider to be usury? A few states have turned up the heat on the pay day loan industry by forcing them to lower their interest rate caps or by forcing them out of business altogether. Of course, this has not stopped these predatory lenders from opening up online hubs that allow consumers in states where pay day loans are prohibited from entering into these dubious contracts.

The real reason that title loan and payday loan companies are in the business of collecting huge profits is so that they can fund nationwide marketing campaigns. Without new customers these predatory lenders are unable to open new locations in low-income neighborhoods. If they are not able to continually post record high profits, they also cannot afford to flood the Internet with hundreds of self promotional articles, websites and so-called financial education programs.

Don't beat yourself up if you find that you need to get a payday or title loan, but you should go into the situation with your eyes wide open. Think about whether or not you will be able to keep up with your payments, and consider the fact that you will be paying at least 100% interest on a small, short-term loan. If it is truly in your best interest to take out a pay day loan now, try to formulate a plan that will allow you to pay it off early so that you can avoid paying the full amount.



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