Beware of the Predatory
People can get deep in debt when
they take out a loan against their paycheck. They write a postdated check
in exchange for money. When they get paid again, they repay the loan,
thus the name payday loan. These loans generally come with very high,
double-digit interest rates. Borrowers who cannot repay the money are
charged additional fees for an extension, which puts them even deeper
in debt. Borrowers can continue to pay fees to extend the loan's due date
indefinitely, only to find they are getting deeper in debt because of
the steep interest payments and fees.
Predatory lenders often target elderly and low-income people they contact
by phone, mail or in person. Take for example the case of Pauline who
at 73-year-old got plenty of solicitations from finance companies after
her husband passed away. She was struggling to make ends meet on her fixed
income. To pay off her bills, she took out a $5,000 home equity loan that
carried a high interest rate and excessive fees. Soon she found she was
even deeper in debt, so she refinanced the loan once, then again, and
again, paying fees each time.
Pauline's children discovered her situation and paid off the loan.
|The lessons here are:
- Do not borrow from Peter to pay Paul.
- Never respond to a solicitation that makes borrowing sound
easy and cheap.
- Always read the fine print on any loan application. Seek assistance
from family members, local credit counseling services or others
to make sure a loan is right for you.