Loaning your soul to the devil
Published: Wednesday, September 4, 2013
Updated: Wednesday, September 4, 2013 23:09
We have a new villain in town. It’s a growing financial industry that targets low-income people, with an emphasis on college students. It slides under and around regulations and is more slippery than a snail in an oil spill and has gone largely without regulation for long enough.It is time for the nefarious payday loan industry to stop their systematic oppression and exploitation of people who are suffering from financial hardships.
Many people are appalled at the idea of a credit card with 22 percent interest rate and would never think of applying for one but travel down the main streets of any town and you will find payday loan storefronts advertising their extremely low rates – of up to 664.30 percent APR. The Consumer Federation of America estimates that there are 22,000 payday loan stores nationwide and that the insidious industry loans more than $40 billion annually while collecting more than $6 billion in finance charges; not include late fees, service fees and additional fees.
Here is how the payday loan system works. Let’s say that you have just gotten your book list for the semester and several of your books must be purchased new from the bookstore because you also need the product keys. You haven’t received your financial aid refund and your family doesn’t seem to have hundreds of dollars laying around for you to buy books. You go to a lender and get approved for a certain amount, on average between $300 and $500 dollars, and you write a postdated check with the amount plus the finance charge. You usually have up to 14 days to pay the loan back in full or, when the time is up and you do not have the cash for the loan, you can write another check for the original amount plus additional finance and service fees to buys you another two weeks of financing. This cycle will continue until you default on the loan or pay the larger amount back with cash.
Students who may have little or no credit often turn to payday loans because they feel as if they have no other option. They take out a loan with the intention of paying it back with their next paycheck. However most people who take out payday loans live paycheck to paycheck and so this creates a cycle of paying off the loan plus interest and then having to take out another one because you just spent all the money you have paying off the first loan.
There are several ways to prevent falling prey to this system. Do your homework when applying for loans and credit cards. Becoming an educated consumer at a young age will not only establish a healthy credit rating for you but it can pay off for you when it comes time to buy a car or home. Most credit card companies offer cards with low limits and rates for students who are building up their credit. Banks and credit unions will generally have some type of combination account or loan program designed for college students.
If you are trapped in a payday loan there are resources on campus and in our community that can assist you. The Student Money Management Center can provide financial counseling and resources to help students develop healthy financial habits. The Student Legal Services department can also help you understand the terms of your loan contract as well as answer any questions you may have about how this could impact you.