Too Good To Be True: Predatory Lending

When money gets tight, it can be hard to know where to turn. You may feel concerned about applying for a loan at your bank or credit union, thinking about the frustration and embarrassment of being turned down.

If you’re in this situation and you see a payday lender offering quick cash, you may be ready to jump on it so you can pay your rent, fix a broken phone or vehicle, or cover costs for your kids. Think twice, because these predatory lenders are ready to trap you and overcharge you, ensuring that you’re stuck in a cycle of never having enough money and never being able to pay them back in full.

Predatory Lending and How to Recognize It

Predatory lending is when a lender uses unfair, deceptive, or abusive tactics to trap borrowers in expensive loans. They won’t say “predatory” in flashing lights on their sign. Instead, they may call themselves “payday lenders,” “auto title loans,” or fast cash stores.

They offer too good to be true options to get some money in your hands, then make it almost impossible for you to pay off your loan. Here are some signs that a lender might be trying to take advantage of you.

Extremely high interest rates.

A payday loan may advertise having a set fee or interest rate, but it’s actually a high percentage because of the short-term over which the interest is charged.

For example, you might be charged a $15 fee for a $500 loan, which sounds reasonable. However, when you calculate that the $15 is charged over a 14-day period, it equates to nearly 400% APR (see example below). And that’s not even taking into consideration the additional fees that are charged if you are not able to make your payment on time.

No credit check.

Sometimes people may lean on a predatory lender because they promise no credit checks. However, the reason they do this is because they do not care about your credit history and are counting on you not being able to pay back your loan.

The longer it takes you to pay back your loan, the more money they are able to get from you in the form of fees and refinancing to higher and higher rates over time.

Short repayment windows.

These predatory lenders often market themselves as “payday lenders” and present themselves as providing short-term loans because they’re convenient to the borrower.

In reality, they only make the loans short-term because it’s to their benefit. When you don’t pay the loan back in full during the official loan period, they quickly add on additional fees, which pile up and make it almost impossible to get out of the debt trap they’ve created.

Direct connection to your account.

These predatory lenders make sure they get paid first by connecting to your accounts and drawing funds immediately.

They make sure they get paid right away and take a large chunk of your paycheck, so that your only choice to be able to afford other necessities is to get another loan. That’s how they continue to keep you trapped.

The Real Cost of a Predatory Loan

Wondering how expensive it can be to pay off a predatory loan. It’s not simple.

Borrowed: $500

Typical fee: $15 per $100 borrowed every two weeks

Effective APR: around 391%

Most borrowers can’t repay in two weeks. In fact, the CFPB found that 4 out of 5 payday loans are rolled over or renewed.

So, when they can’t repay, in addition to the $15 per $100, they also are charged a renewal fee of $75 every two weeks. If you continue this over the course of five years, your $500 loan becomes more than $10,250. That’s money that could have been used to manage other costs or give you a fresh start, and instead, it’s in the hands of the predatory lender.

A Safer Alternative: Andrews Federal’s Cash To Go Loan

While we hope you never find yourself in a tough financial situation, when you do, we have options to help you manage your situation without getting you into ruinous amounts of debt.

Andrews Federal’s Cash To Go Loan is a safe, affordable alternative to payday lenders. You can:

Borrow $250 to $500

No credit check in required

Make flexible payments: monthly, bi-weekly, or on the 1st and 15th

These loans are designed to help you when you’re in a tough spot, not trap you and keep you held hostage by debt. It’s short-term help when you need it so you can handle tough financial situations without compromising your financial future.

You deserve financial options that empower you. Let us help you find the tools and resources that work for you, including Cash To Go loans, financial counseling and more. Reach out today and let’s work together to safeguard your financial future.