And that sums up the whole issue. If you set a maximum interest rate, you will effectively cut off a certain segment of the population from being able to borrow money. So what do those people do? Go to Tony Soprano? This is one of those things where the fix may make you feel good, but it ends up hurting the people you think you are helping.
What a perfect example of Schadenfreude. Sucks to be him! 
How is making people pay back 100% interest helping them? Many people who go to these kinds of places, or Payday loans, end up in an endless cycle with them. They cannot afford the interest or the payments but they get approved anyway. Then they have to borrow money to make those payments, and so on. Giving someone a loan they cannot pay back is not doing them a favor, you are setting them up to fail.
People in the past didn’t go into so much debt, because loans were harder to get. I think a lot of our problem now is that credit and loans are thrown at people for any reason, now we are so used to financing everything that it seems like a normal way to pay. It was customary to save up for things not too long ago ( and I am only 29, so I am not that old).
I am sure many people who go to these places are desperate, but the reason they have bad credit is either that they have already been approved for too many loans they cannot afford (one more will help them! Or, it will just delay the inevitable until they owe thousands more and now can’t get a loan anywhere.) or else they don’t have any income, something a loan does not help you with. It is a temporary fix.
I have sympathy for people in desperate times, I have been there myself in past years, wondering how the rent is going to get paid. But I have nothing but contempt for these kinds of predatory lenders. They are putting tempting bait out there and then hooking people when they are at their lowest. There are charities that do much more good for people in these situations than giving them a crappy loan they will be paying for years.
Hell, that’s nothing. Post-dated check loans regularly approach 500% APR. :eek:
Not borrow any more money? Not dig themselves an even deeper hole that’s even harder to climb out of?
What bothers me are the ads for “payday loan” type places that suggest taking out a loan for what is essentially a luxury purchase, like a vacation. I guess we’ll never run out of people willing to sacrifice their future for a little fun in the present.
By putting money in their pocket when it is not available to them any other way. What are you doing to help them if you don’t like it?
What are you, their mother? Tell me why you have a problem with an adult making his own decisions? It may not be a decision you or I would make. It may be the dumbest thing in the world. But they are adults making their own choices.
Which beats the no fix at all that you are offering.
Look, I’m not saying that taking these kinds of loans are a good idea. In fact, I think they are phenomenally stupid. But adults should be free to make their own decisions, period.
The US Military has prohibited service memebers from using these services. They term them “predatory lending” practices, and in the long run cause more harm than help.
In Virginia, the average interest rate over the term of the loans (and they are anywhere from 2 to 13, hardly ever one loan - people have to take out another to pay off the first) are around $390.
This issue has been gaining a lot of attention in this state.
I hate those companies because they are taking advantage of people who are desperate, uneducated, or stupid. I am not saying the people who take out the loans have no blame. I just think basing your business model on trying to screw people over as much as possible is not a great way to go about your life.
Heck, I would let any bill or payment get behind before I took out one of these loans. You are better off paying someone late and paying those fees than paying one of these loans back. No regular credit card, utility, or even mortgage payment will charge you 100% to get current with them if you fall behind a month.
This is not a fix at all, that is what I am saying. All it does is delay. It is like giving an alcoholic one more drink. If someone has bad credit so this is the only loan they can get, either they don’t have any income and / or they already have more debt than they can pay. How does borrowing more money help them at all? It will make it worse, not better! So they use the loan to pay back X Company loan. Now they owe the payday place instead. How is that any better?
There is, AFAIK, no Federal anti-usury law. Not all states have them. Virginia, for one doesn’t. Back while I was in the Navy, and stationed in the Norfolk area, there were scads of businesses that preyed on the young enlisted folks who didn’t have the knowledge to see how they were being scammed. I went with one kid who wanted to buy a motorcycle, and even though I told him not to sign anything, unless he was told what APR he would be paying, they would not let him know the APR. They kept coming back with more and more double-speak.
At least this ad does mention the APR the poor idiots will be paying. 
I’m of the opinion that lending laws shouldn’t consider interest rates, but should target fraud and deception, and should establish clear and understandable disclosure requirements. It is an unfortunate fact that you can’t legislate financial sense; there will always be some people making stupid financial decisions. The problem with usury laws is that they keep people from the few times that a high-rate short term loan really is the best option available. When you need that $1000 for emergency repairs to your car so you can get to work on time, and you can’t get it at any price because the legislature has determined that you are too big a credit risk for anyone to legally lend to, the downside of that might be much more than the $3000 in interest you’d eventually pay.
I read an article a few weeks ago that had an interview with a finance-here car salesman, in the kind of outfit that overcharges for crappy cars and then charges an absurd interest rate on top of that, and the part that caught my eye is that something like 15-20% of his customers never ask about the interest rate, just the payment. Maybe they don’t even know what an interest rate is. A free market should push the interest rates on these kinds of loans down to a reasonable (although still high, based on high credit risk) level. The reason that they don’t is that there doesn’t appear to be much competition on interest rate. There are enough completely clueless people out there who will sign any damn fool agreement you put in front of them that the sky is the limit. Maybe instead of limiting interest rates, we should require that customers complete a quiz that makes them calculate how much they’ll pay over the course of the loan. If they get it wrong, they don’t get the loan. We could even let the lenders help. 
The same odd set of incentives exists for normal credit cards, although not as strongly, since there are still people who pay attention to their credit card interest rates. I’m not even sure what my credit care interest rate is. I think it’s about 12%, but I know I had one at 24% for a while, and I often get offers with 30+%. But I don’t care. I’ve never carried a balance and I don’t intend to, so there’s very little incentive for me to shop around based on interest rate. Rewards are more important. And the credit card companies have determined that there are enough people who do carry a balance and don’t care or don’t know what the interest rate is, so they keep pushing it up.
This is true. But to get rid of them would mean shutting down 99% of the entertainment industry (the uneducated and stupid) and every dating service that exists (the desperate).
Here’s one scenario - A man who is the sole earner for his family has a problem with his car that will cost $2000 to repair. He doesn’t have the cash or the credit for a conventional loan. If he doesn’t get the car fixed, he loses his job. His only option in this case is to get the money from a place like this. It’s not a great scenario for him, but it’s the best he can do.
I think that the only thing that a lender is responsible to provide is full disclosure - APR, any fees, a full payment schedule, and a total amount that is to be repaid. After that, it is the responsibility of the borrower to determine what is best for himself, and no one else should interfere.
There is a thin line between “you shouldn’t do this” and “you aren’t allowed to do this.” As a free society, we should strive to limit the latter.
I have appalling credit. I have it because in my twenties I didn’t manage to get ahold of this new-fangled idea called “paying your bills on time.” Probably the best thing that ever happened to me was getting sued by Capital One because it kicked my butt in gear to pull my credit report and go back and start paying off everybody I owed. So now I’m out of the negative and back to a zero balance, meaning I got nothing, I owe nothing.
But now I am in the position exactly like what those ads target - OK job but with two kids and a husband that had a bad run of 3 month unemployment we are back to month-to-month and living paycheck to paycheck. If the car broke down tomorrow we’d be screwed. And I still have bad credit because it will take years to undo the damage I did. Having said that, I would sooner sell an organ than use one of those places because it would put me back into a cycle of not having enough to pay *that * loan, then I borrow money from someone else, then I end up robbing Peter to pay Paul all over again.
What someone with appalling credit does is take a good hard look at what you need vs. what you want (cable, internet, video rental, bah!). Save $2 a week if that’s all you can. Put it into a savings account. When you get a couple hundred take out a secured loan and start all over again as soon as it’s paid off.
That’s all you can do and hope to come out the other side clean. There is no other side with these kind of lending institutions.
Having said all that, I will say this: I am not in favor of banning, closing or limiting these types of lenders. If someone is willing to buy, then why not sell? It’s not morally right but if I can figure out my scenario on my own, along with many others that manage to climb out, we can’t go around holding the hands of those that either can’t or won’t see that there is no savings or good credit at the end of the path without sacrifice and some very hard work. Even if that hard work sometimes comes in the form of calling to defer the payment on your power bill (which I just did) or selling your engagement ring to buy diapers and milk rather than borrow from creeps like this (which I did two years ago).
Here’s the article I was thinking of.
I misremembered about the percentages of people who ask about rates. It’s actually people who ask about the price. And it’s even worse than I thought.
It’s hard for me to comprehend this. How do you help keep people from making bad financial decisions when they don’t even know what decisions they’re making?
And, of the woman who spent almost $8000 (easily $1500 too much, according to rough bluebook estimations) on an old Saturn, financed to the hilt:
What can you really do about a couple who has four kids, an income around $30000, several high interest loans, and then takes out a $880 loan for a wedding ring and an $8000 loan for a car? These people appear beyond the ability of society to save them from their own bad decisions and they’ll likely continue to throw money away as soon as someone dangles something shiny in front of them.
You said it better than I. thank you. My point was that to come out the other side, you have to completely erase this mind set. And I know too many people that have it.
You appear to have what it takes, Shelli, to get yourself out of that kind of situation. I count myself lucky that I’ve never been in that situation. My parents taught me good financial skills, and I’ve been lucky enough to avoid financial pitfalls like expensive medical care or uninsured loss. And I’m not going to claim that it’s easy to dig yourself out of debt. I have a lot of sympathy for people who are stuck in hard financial straits.
But I’ve got little for people spending hundreds of dollars on jewelry with cars that cost more than mine, or refuse to get rid of the cable or stop buying new toys, who can’t seem to make ends meet. Laws limiting interest rates won’t help people who can’t stop spending what they don’t have.
Many years ago, I set out to buy a car. I found a Geo Tracker at an auto consignment store which looked kinda nice for my purposes. The dealer was very forthcoming with how much I’d have to put down as a down payment, and what my monthly payments would be… but just wouldn’t give me an actual price on the damn thing.
After sitting down and doing the math on how much the two-year-old vehicle would cost me after all the financing, I realized that they’d be making several thousand dollars above the price of a new Tracker off of me.
Needless to say, I didn’t buy it.
So, maybe I misunderstood. It’s not that only 10% ask about the price, it’s that only 10% are successful in getting the salesman to actually admit to one.
That’s somewhat less damning, since I know how effective good salesmen can be at talking around things they don’t want to talk about. But it’s still not too encouraging. How many of those people did what you did and pulled out a calculator? Depressingly few, I expect.
Nevada doesn’t seem to have any limits on what interest rates that you can be charged. It is notoriously bad at the “payday loan” places. There was a piece on the news a while back (one of those “on the consumers side” bits) about the outrageous interests that some payday loan shops charge. IIRC they found one that was charging like 800% interest, compounded daily.
The payday loan stores are like a disease here. I swear there is one on every corner and more so in the “poorer” sections of town.
This town is full of people who live paycheck to paycheck. When something goes wrong for them (emergency car repairs or non-covered medical bills) They turn to these shysters. They prey on the desperate poor and those afflicted with gambling problems. (I know that the payday loan places aren’t responsible for the gambling addiction, but they feed the beast).
I hate the payday loan stores more than I hate Wal-Mart. (No, I have never taken a loan from one of these shops)
I ran out of time to edit…
I saw ShelliBean’s post… SB, it does get better. My credit score was in the shitter. Well, in the sewer would have been a better description and it wasn’t even that good. In 2001 when I needed to get a different car, my credit score was about 400. My dad had to co-sign on my car loan so I wouldn’t have to pay 30% interest :eek:.
I had had fraud/identity theft, but I couldn’t prove where I was living from June 1996 to October 1996. When I tried to report the fraudulent charges, they didn’t believe that I had moved to Las Vegas. They wouldn’t take my parents word for it that I had actually moved to Nevada and was living with them. I had no utilities in my name, you see :rolleyes:.
My ex had stolen my cc and gas card right before I left Nebraska. I never used them. I paid for everything on my way out here with cash. I didn’t realize the cards were gone until 3 months after I got here. (I never opened my statements because “I haven’t used them so I don’t have to look at the statements” very bad move.) He charged them up in stores all over Omaha. I found out about it because of a collections notice. They didn’t believe that I was living in Nevada, but they knew where to send the collections to?
Anyway,so I ended up having to “eat” all the charges. It started on payment plans then they decided they wanted all the money then I couldn’t afford it. I ended up settling it for 0.05 on the dollar in 1999. I was working, however all but about 30(I had to buy gas to go to work) of every paycheck went to the bill collector.
The point of my story is that just fly right. Get a credit card as soon as you can and start building your credit back up. (If they give you a limit that is "too high"for you, ask for a reduction)
My first card after all this crap was a Capital One card as they were the only ones who would give me an unsecured card, with an annual fee of 60$, and a $200 limit. I would buy something and pay it off. Little by little my credit limit increased. I got the fees waived. I eventually dropped CO like a hot potato when I got a better cc with a better interest rate. But it’s all baby steps in building yourself back up.
The last of the nasty stuff dropped off my credit report in 2003, the month before my wedding. I did a happy dance in the kitchen then cried (out of joy) for nearly half an hour. lame I know.
Now I have a credit score that is grazing 800.
The one thing on the cashcall website that jumped out at me like a flaming lemming?
“The lowest rates and higher loan products are reserved for customers with excellent credit.”
Just how many customers do you imagine they get that have excellent credit?