NEW YORK — Ever need quick cash to pay for a pricey car repair? Or fix an appliance?
Millions of Americans every year turn to Payday Lenders to get them to the next paycheck, turning this into a nine billion dollar industry.
An estimated one in 20 households has taken one out.
Interest rates can be 300 – 1900 percent annual percentage rate, meaning borrowers find it impossible to pay back as the interest piles on to unsupportable levels.
About 75 percent of borrows keep the loan going well past the new paycheck.
Six in 10 Americans don’t have savings of $500 according to Forbes, sending them to these lenders.
Jorge Castro needed a few hundred dollars to finally fulfill his dream of being his family’s first college graduate.
Going to school for television production, it was time to celebrate his graduation.
“I needed money for a cap and gown. All I needed was $400. I wanted my family to be proud!”
So he did what many do, and went to the Internet to find some quick cash. The problem? “I ended up paying for a $400 loan, $1500, $2000. Like three to four times the amount of whatever the loan was!”
That’s because Jorge’s loan had an interest rate of 232 percent. This $9 billion industry is known as Payday Lending. They’re perfectly legal in 32 states, but totally illegal in NY and NJ because they charge interest rates of up to 1,900 percent.
Isaac Rodriguez runs a not-for-profit-lender that’s based on collateral.
The provident Loan Society is the nation’s oldest pawnshop and they are working to educate borrowers about interest rates that you can actually afford.
“This is a big problem in New York. We have a lot of people who need short term loans.”
With more payday lenders than McDonalds, cash strapped borrowers can easily dip in, most can’t get out.
Rodriguez illustrated it this way — “We have a customer in Bronx who pledges her chain to get to payday so she can get a nebulizer for her son.”
Castro fought back by taking financial literacy classes at Neighborhood Trust Financial Partners. He learned how to budget, then fought back against his lender with letters, and the help of Eric Espinoza, a financial counselor at Neighborhood Trust, eventually getting $1100 back.
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