The Problem With Payday Advances and Title Loans
The holiday season is fast approaching and, for most of us, that means we are facing higher expenses over the next few months. While some individuals spent the first part of the year saving up to ready themselves for this higher spending season, too many will find themselves considering alternative sources for emergency cash, such as payday advances and title loans. Sadly, far from making the holidays more affordable, these short-term loans can actually put you in a much worse financial position.
Payday Advances: More Predatory Than You Think
Payday advances offer consumers a loan equal to a percentage of their future paycheck. As expected, lenders charge interest on this loan. However, unlike the more reasonable rates of interest charged against other types of loans, payday advances can have interest rates as high as 1000 percent and it’s not unusual for them to average 300 to 400 percent. Generally, a person who needs to borrow money through a payday advance is not someone who can afford to pay back that amount of interest. According to the Consumer Finance Protection Bureau, more than 80 percent of payday borrowers either roll over their payday loan or take out another, indicating that most people turning to payday advances aren’t really treating them as a one-time solution.
Title Loans: Default and Lose Your Car
According to the Consumer Finance Protection Bureau, roughly 33 percent of title loan borrowers face default on their loans and 20 percent actually have their cars repossessed. Part of this is because title loans typically have to be paid back within 30 days, yet their principals are larger than payday loans since they are based on the value of a car.
Personal loans such as payday advances and title loans may seem like a good way to increase your cash flow during the holidays. Unfortunately, they’re really a good way of increasing the cash flow for the lenders and hurting your overall financial position.