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Loan Sharks of the 21st Century

ayday Advance, Payday Loan; there are many
different terms used for these "services." The
one thing they all have in common? They are out
to Get Your Money. A lot of it.

Over a year, the cost of the loan would typically
yield an APR of 500% or greater. Perhaps I'm
just getting old, but in my day, we called a loan
at 21% "Loan Sharking". Now it's not uncommon to
see this interest rate on credit cards.

Per Wikipedia: "A loan shark is a person or body
that offers illegal unsecured loans at high
interest rates to individuals, often backed by
blackmail or threats of violence. They provide
credit to those who are not willing or are unable
to obtain it from more respectable sources,
usually because interest rates commensurate with
the perceived risk are illegal."

When you walk in to a payday advance store front,
they ask proof of income, then inform you what
the maximum amount is they will lend to you.
Often time, the temptation of 0-1400 in cash
is too much to pass up; especially for those who
have gotten in over their heads with credit cards.

Sound harsh?

Well, unfortunately, I speak from experience:
One takes out a loan for the maximum amount
allowable, to pay off whatever emergency or
circumstance drove them to such drastic measures,
and plan to pay the loan off from their next
paycheck.

Guess what?

Next payday rolls around, and if one doesn't have
most of their current paycheck, the electricity
will be shut off, there won't be enough food in
the, etc. So, one pays off the loan, horrifying
interest included, and take out another loan of
the same size. And on it goes, until one finds
that he's actually paying out 400-500% interest
on the original loan!

If a borrower is really creative, desperate, and/
or just plain foolhardy, he's over the barrel
with several of these loans at one time. Being
as payday loans are available on-line, through
walk-in storefronts, and via fax, it's easy to
get in the red rapidly. Now a borrower is going
from paycheck to paycheck, with most of their
money being paid out to the Loan Sharks of the
21st Century with bankruptcy only one very small
step away.

Payday advance lenders make a big production of
the fact they don't perform credit checks. For
those with poor credit, it's painful to know that
credit standards are allegedly there to protect
the lender as well as deter the foolish. Whereas
you can have poor credit for numerous reasons in
a society rife with unworkable finance systems,
the main reason is you have not found the
information needed to learn how to manage your
finances, or even set up a budget. There are
many free tools available through the internet
for setting up a budget. And if you do not have
internet, or want additional information, the
public library has many publications devoted to
this subject.

Interestingly enough, in October, President Bush
signed a bill into law capping loans to military
personnel at 36% APR (as if that is a deal). It
seems, however, payday legislation for civilians
is even worse - being left in the hands of the
individual states. State legislation varies from
regulating payday advance loans, ignoring the
subject completely, to banning these loans (but
not always with a viable solution to catastrophe
or emergency). Contact your state government to
find out where your state falls in this respect.

If you are considering getting a payday advance
loan, give yourself 24 hours, and then think it
over again. You are taking a chance of sending
your financial future into a downward spiral that'
s not all that easy to climb out of, and could
spell financial disaster, and sleepless nights
to boot.

If you do have one (or more) of these loans: Cut
out all wasteful expenditures,
Get yourself on a budget - don't spend more than
you have and necessities always come first, Stick
to your budget, Research out and find ways to
generate the additional income you need.

If after all that, (sigh) you absolutely must
borrow, then take out a loan for the absolute
minimum you need from your credit union and get
the lowest rate possible;
Stop the endless cycle of incurring debt.

Don't let the vested interests of the 21st
Century Loan Shark leave you in a plight. Get out
while still you can!
About the Author
Alice Hart is a mother of 2 living in Michigan.
She is currently working her way through a 12
step program to regain control of her finances.