Instant cash equals instant financial relief … or does it? You see them on T.V. all the time; those annoying commercials that promise “Instant cash now,” or, “cash for your car now!”
There’s a reason those crafty lenders use the word “now” over and over again. They know there are times when people need money quickly – car repairs, house payments, speeding tickets – because stuff happens. Quick cash lenders prey on that need, sometimes with disastrous results to consumers, especially given their average Annual Percentage Rates (APR). According to the Consumer Federation of America, the average APR used by quick cash lenders is 400% – 20 times higher than most credit card companies.
Let’s do the math. If you borrow $500 and multiply that by 400%, that’s an extra $2000 you would pay if the loan had a maturity date in one year. So that $500 loan would cost you $2500 if you took a year to pay it back.
Quick cash lenders sell you that 400% APR by telling you not to worry, it’s only a short term loan. You won’t be taking a year to pay it back, riiiight? You’ll pay only a fraction of $2000 because, at most, you’ll be paying the debt back in a month or two.
That’s the debt trap.
In some cases the above might be true, but let’s be honest, a lot of times people simply can’t afford to do as promised. No worries. Your new lender friends will “roll over” the loan for another two weeks. So that $500 loan with half a month of finance charges ($83) has now cost you $166. And what if that goes on for several more weeks? Some states, like Missouri, will allow you to roll over your loan up to six times.
Honestly, your lender friend is banking on the above outcome. That’s why they make it so easy to borrow the money. Many lenders don’t even check your credit. A lot of them only ask for bank account information, a valid I.D. and a copy of a previous paycheck. That’s it. Scary.
A car title loan – or any type of title loan – is no better. They work much the same way. Quick cash; high APR, and the specter of your car being repossessed. The Center for Responsible Lending reports that the average car title borrower renews their loan eight times, paying $2,142 in interest for $951 in credit.
The Internet is loaded with quick cash horror stories. Fortunately, many states have enacted legislation to protect consumers. A majority of states no longer allow pay day lenders to roll over their loans. Some states have banned pay day loans entirely.
Look, everyone gets desperate for cash from time to time, but if you find yourself needing money now, apply for a loan from a reputable lender. Even asking a family member for help is better than an instant cash now loan. Don’t fall into the debt traps advertised on television for an easy out. If you do, you might end up in a worse situation than when you began.
Pamela is the author of thirty-eight romance novels with more coming out every year. She’s best known for her NASCAR romance novels, but writes non-fiction, too. Pamela’s a regular columnist for the American Quarter Horse “Journal” and writes for SuperMoney.com where she shares her personal finance tips on how to thrive in this economy.