Attorney Sarah Ludwig, Founder and Co-Director of The New Economy Project, formerly NEDAP, the Neighborhood Economic Development Advocacy Project, warns against taking payday loans, or borrowing money using your car title. Lenders often charge 400% interest for these loans.
While they seem like an easy answer to help pay a bill, they can trap you in a cycle of debt that may lead to financial ruin.
A Pew Center for the States study found 12 million Americans borrow something like $7.4 billion using pay day loans. Most take out 8 loans for $375 each and spend $520 on interest per year.
The good news is that pay day loans are banned in the Arizona, Arkansas, Connecticut, the District of Columbia, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia according to the National Conference of State Legislatures.
Sarah and NEDAP worked tirelessly to get the practice banned in New York. But that leaves many states where storefront offices and online sites lure you into a deal that’s potentially dangerous to your financial well-being.
The financial interests in the pay day lending business aggressive lobby state politicians so that they can remain in business. Recently, Missouri’s Secretary of State scuttled an initiative to put a proposal to cap interest rates on the November ballot. The Kansas City Star and others had a lot to say about it, but pay day loans remain a real threat in Missouri and elsewhere.
So protect yourself. Instead of taking a pay day loan consider:
1. Borrowing from a credit union.
2. Getting a cash advance from your employer.
3. Getting emergency assistance from a community group, or social service organization.
4. Working out a payment plan with the creditor.
5. Visiting a not-for-profit counseling agency to help you develop a strategy.