Beware of Payday Loans, Auto Title Loans

Beware of Credit Offers Aimed at Recent Bankruptcy Filers

Small Loans

It is always best to save some money to cover unexpected expenses so you can avoid borrowing.  But if you are in need of a small loan, avoid the following high cost loans:

Payday loans

Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks.  In return, they will give you an amount of cash that is less than the amount of your check.  The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you.  These payday loans are very costly.  For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728-percent interest rate!  And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount.  If you choose to write another check, the lender gets more money from you and you get further into debt.

Auto title loans

For many years, pawn shops have made small high-interest loans in exchange for property.  A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 percent to 800 percent) if you let them hold your car title as collateral for the loan.  If you fall behind on the payments, the lender can repossess your car and sell it.

Source: Using Credit Wisely After Bankruptcy Pamphlet, National Consumer Law Center, Boston, MA, www.nclc.org.