Predatory Lending

Spot Predatory Lending and Use Smart Alternatives

It is the first of the month, your bank account is nearly empty, and rent is due. Desperate, you turn to a payday lender for a quick loan until payday. But then your car breaks down, and suddenly you are borrowing again, digging deeper into debt. This scenario plays out for millions of Americans every year. The good news? You can avoid turning a tough situation into a financial disaster.

How to recognize predatory financial services, understand how they operate and choose better solutions

Payday loans are a predatory pitfall

Payday loans, for example, are promoted as quick fixes, no credit checks, instant cash, but the reality is far harsher. With annual percentage rates (APRs) ranging from 300 to 800%, these short-term loans can quickly spiral out of control. According to the Consumer Financial Protection Bureau, over 80% of payday loans are reborrowed within a month, and one in four borrowers reborrow 9 or more times. Borrowers often end up paying more in fees than they initially borrowed.

Predatory lenders promise quick relief but keep borrowers trapped in cycles of debt

Payday lenders profit when customers are unable to repay their loans. They target people who may not have access to traditional financial institutions and often lure them in with additional services, such as check cashing, for hefty fees. Cashing a $1,000 paycheck could cost $50 or more each time, adding up to over $1,300 a year. By contrast, credit unions typically let members cash checks for free and offer the convenience of direct deposit.

Pawn shops are another predatory risk

Pawn shops offer quick loans against personal items like jewelry or electronics, but with high interest and short repayment windows, usually 30 to 90 days. If you cannot repay on time, they will either extend the loan for extra fees or sell your valuables. In a 2019 survey, 73% of pawn borrowers still owed money six months later.

Car title loans can leave you stranded

Car title loans are similar because they use your car as collateral. Title loan lenders rarely verify income or credit; they do not need to, because if you default, they take your car. Many own dealerships, meaning they profit from both your payments and the resale of your vehicle.

Rent-to-own stores may seem harmless but can be just as predatory

Paying $30 a week for a couch might sound affordable, until you realize that the same $600 couch could cost you $2,000 by the end of the contract. With effective APRs ranging from 43 to 468%, rent-to-own agreements charge far more than a traditional purchase or even a credit card.

Even housing can fall into the predatory trap

“Rent-to-own” or contract mortgages often target people who cannot qualify for traditional loans. These deals typically include high interest rates, balloon payments and strict terms. Miss a payment or break a rule, and you lose both the home and every dollar you have invested.

If you need emergency cash, a personal loan from a credit union is a far safer choice. You will get better rates, longer repayment periods and transparent terms. Credit unions, like Ascentra, even offer loans, such as “CashNOW” of up to $2,000 without a credit check. These loans are reported to credit bureaus, helping you build credit as you repay.

A credit union offers fair loans, financial coaching and long-term solutions to help you build stability and wealth. When money is tight, it is tempting to use the first lifeline offered, but not all lifelines lead to safety. Many are anchors that pull you deeper into debt. With the right financial partner and a solid plan, you can stay afloat, regain control and steer toward the financial future you deserve.

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Sharing the Credit Union Difference

Oct 22, 2024

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Your finances are important, right? They are… and it’s just as important that you pick a financial institution that fits your needs, protects your money and has the benefits and opportunities to help you plan for the future!

As your kids grow into young adults, it’s important they know why you choose to bank with a credit union and now is the time to teach them. As not-for-profit, financial cooperatives, credit unions don’t just use their profits to maintain the business but also to provide lower rates for loans and services as well as heavily support the communities they serve. This makes credit unions member-driven with a mission of putting people over profits in everything they do. Remember that when you join a credit union, you are a member-owner of that credit union and most certainly are part of something bigger than just a bank to keep your money at.

Credit union members have access to financial tools and resources that offer learning opportunities and expert guidance on topics ranging from budgeting and credit management to investments and retirement planning. We do this through trained experts who provide professional member advice on managing accounts, paying bills, budgeting, home and auto purchases and even managing business finances, all in one place… at your credit union. Did we mention that this advice and guidance is FREE?

Alright, credit unions offer some pretty great benefits but what’s the big deal? Well, it’s important to understand that credit unions aren’t just a bank, they are a financial institution with a culture that cares deeply about the people and community they serve, and this reflects on who they are as an organization and brand. This is because all credit unions are founded on a “People Helping People” philosophy, which gives them a bigger purpose than just offering accessible and fair financial products and services, but also a social responsibility to take care of its members, its employees, its community and others.

At Ascentra, our motto of Listening, Caring and Doing What’s Right is at the heart of every transaction we make, every new member we welcome and every effort we put into our communities. Thank you for being a member and we invite you to share what credit unions are all about with your kids, family and friends. Learn more about the credit union difference at ascentra.org/difference.