Just about every strip mall or shopping center has one: a payday or title loan company. Offering “fast and easy” cash for consumers, these companies prey on those living check to check or in need of quick money to cover expenses. While some of these companies can be responsible lenders, there is still a lot of risk in borrowing from one. Here’s why:
At Risk Assets
Many of the loans offered by these places come in the form of secured loans, or loans that require you to place an asset as collateral. In the event you default on the loan by missing a payment, and sometimes even being a day or two late, your asset becomes eligible for seizure and liquidation. Once you have signed the contract for the loan, you may find it difficult to protect your asset. If you were to file for bankruptcy to resolve your debts, including the payday or title loan, you could find that the debt is not eligible for discharge either.
These risks are not just risky in terms of your assets used as collateral, but the conditions carried by such loans are often unreasonable. It isn’t uncommon for these loans to carry 50 percent or more interest rates on the repayment. Many of the companies advertised on television have 116% interest rates. If you were to borrow $5,000 on such a loan, you would end up paying closer to $15,000 to satisfy the debt. Rates like these are certainly not worth the convenience of “quick and easy” money.