How to Make a Debt Trap

12 May How to Make a Debt Trap

Have you noticed that higher-income consumers get better interest rates than lower-income folks? That’s only reasonable — lower-income households are a greater risk, right?

BusinessWeek is reporting an in-depth article this week that shows it can be more than compensation for risk — it can be a business model!

Some businesses have discovered that there are excellent profits to be made selling to high-risk customers. They are using sophisticated computer screening techniques to figure out what is the maximum price they can squeeze out of you. That “price” can include the interest rate and monthly payment. The goal seems to be this: Set your payment at the most you can potentially afford to pay each pay period so you will actually pay — but not pay off the debt quickly.

The important fact to remember: Many of these businesses no longer really sell the product or service they offer on the store front — be it used cars, tax return preparation, computers, what have you — but the financing that you need. As a used car dealer in the articles points out, cars are only the commodity – they’re really in the finance business. He should know: It is reported that their dealership franchises earned an average of $828 on car sales while used cars sold at new car dealerships yielded only $223 and new car sales actually yielded a net loss last year.

Of course at one such dealership mentioned in the article, almost half of the loans end up not being completely paid and the cars often end up back on the lot through surrenders or repossessions to be resold again.

And for folks who do complete paying for the used car with well over 100,000 miles on it? If they are extremely lucky, the dealership reported the good-payment history to credit bureaus. But think about that — why would these businesses want to report your good conduct to credit bureaus? To help you build credit? So you don’t come back?

So “easy” financing offered to folks with “less than perfect” credit on cars, furniture, televisions, computers might be helping you to buy something you need. But they’re also helping you to remain trapped in a subprime, high interest cost life.

And the final irony? Most folks who file bankruptcy when these debt traps have wrecked their lives feel miserable about “failing” and not paying back their debts, as though it is they who did something wrong.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:

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