When Is A 250% APR Loan Considered A Good Deal?
By Susanne Robicsek, North Carolina Bankruptcy Attorney on Aug 28, 2007 in Benefits of Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, General Bankruptcy Information, North Carolina, Personal Finance
Payday loans are being made by non-profit groups in an attempt to help people out. If you consider paying only 250% interest as help, you must be one of the people who had previously been paying over 500% interest to traditional payday lenders. In the New York Times article By JOHN LELAND, New York Times Published: August 28, 2007, this new trend is explored.
Nonprofit Payday Loans? Yes, to Mixed Reviews . Nonprofit groups are stepping into an industry that has been widely criticized as predatory but that has reached as many as one in 20 Americans.
Since usury laws no longer protect people from high interest rates, lenders’ rates have crept higher and higher, making it harder for people with lower incomes or bad credit to get any kind of decent interest rate. Even worse, once they get onto the “debt train”, these high rates make it extremely difficult to get off the train. People get trapped because all they can make is a payment which doesn’t cover much more than the ongoing interest on the loan.
Payday lenders charge interest often in the form of a fee that is paid each period to renew the loan. If the borrower can’t pay off the short term loan in full, they have to renew the loan and pay a new fee.
Traditionally, these loans are taken out by those who can’t get a loan anywhere else and need cash immediately, usually to cover rent, utilities or some other basic need. These are the people who can afford the high interest rates the least.
A project called “GoodMoney” is a joint collaberation between Goodwill and Prospera Credit Union. Because it is operated by non-profit agencies, it is considered a non-profit. But the fact that a person isn’t making a lot of money off of these loans doesn’t mean that the company isn’t. The non-profit can take the high profits and it hopefully use the money to fund good projects, but does that make it right? Does the fact that a company harms a person half as much mean that it is providing a good service to humanity? Does the fact that a non-profit agency is involved makes it worse than if done for pure capitalistic interests?
These alternative payday lenders provide some good services such as credit counseling, and the lower interest rates could help the borrower pay off the loan much sooner than the traditional payday loan. But one can’t help but wonder, if these agencies really wanted to help these people break the debt cycle, why they don’t give them a 8% or even 18% loan to pay off other payday loans and really give them a helping hand?
By borrowing from these agencies that people think are working in their best interests, debtors may not consider an alternative like bankruptcy which can reduce the payday loans to a reasonable rate of about 10%, or even discharge them completely.
Now that is a helping hand.
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