How Payday Lenders Thrive Off Your Misery
Since the housing crisis of 2008, the term “predatory lending” has become very familiar to American consumers. A predatory lender is someone who exploits consumers’ financial difficulties to trap them into loans that benefit the lender much more than the borrower. The telltale signs of a predatory loan are easy qualification standards and ultra-high interest rates, such as you see with a so-called payday loan.
Named for its purpose – to hold workers over until payday – this kind of loan has drawn criticism nationwide and has prompted many states to enact legislation to curb abusive lending practices. In Illinois, there are three types of loans based on the predatory payday model:
- Small consumer loan — Technically, this is not a payday loan, and, in fact, the law prohibits payday lenders from issuing small consumer loans. Borrowers have as much as one year to repay this loan before they are in default. The monthly payment for a small consumer loan cannot be for more than 22.5 percent of your gross monthly income and its annual percentage rate cannot exceed 99 percent. That still makes it very expensive, but less so than the next options.
- Payday installment loan — This loan is for a period of about six months, at an annual interest rate as high as 400 percent. That means a borrower might have to repay four times the value of the loan in interest alone. By law, your monthly payment cannot be more than 22.5 percent of your gross monthly income.
- Payday loan — A borrower must repay this loan in two to four weeks. Unfortunately, with annual interests rates as high as 400 percent, these loans are very difficult to pay back within the loan period. Fortunately, Illinois law allows payday borrowers who are in debt to their lenders for more than 35 days to enter into an interest-free repayment plan with the lender. Of course, it’s up to the borrower to request it, and lenders usually don’t feel obligated to tell them this right exists.
If you are having so much trouble paying your bills that you are tempted to take out a payday loan, you should take a hard look at your finances. If the debt that’s already hanging over your head is the issue, it’s probably time to call DebtStoppers at 312-913-0630 or contact our office online to schedule a free consultation. Our bankruptcy attorneys explain how much of your debt might be forgiven through bankruptcy. Rather than take on more expensive debt, you can wipe your financial slate clean and get a fresh start.