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.
A Smarter Way to Borrow for Homeowners
During the early-to-mid stages of homeownership, many homeowners begin to accumulate equity in their homes. That equity isn’t just a number on paper; it can be a powerful financial tool. One of the most flexible ways to access it is through a Home Equity Line of Credit or HELOC from Ascentra Credit Union.
A HELOC works like a credit card backed by the value of your home. Instead of taking out a lump sum loan, you are approved for a credit limit, and you can borrow what you need when you need it. Interest is charged only on the amount you actually use, making it a more cost-effective and flexible option than many other types of borrowing.
So, why is a HELOC a better way to borrow money?
- Interest rates are typically lower than credit cards, personal loans, or even some auto loans because your home acts as collateral. This means a lower monthly payment and less interest over time.
- Repayment terms are flexible. During the draw period, usually 5 – 10 years, you can make interest-only payments or pay down the principal as your budget allows. Afterwards, you enter the repayment period, giving you predictable monthly payments over the remaining term.
- HELOCs are also ideal for specific life goals that many people face: home renovations, debt consolidation, education expenses or major family milestones. Unlike personal loans, which are fixed and can limit your options, a HELOC gives you access to funds whenever you need them, with the ability to borrow multiple times within your credit limit.
It’s important to borrow wisely but for those who plan wisely, a HELOC can provide financial flexibility, lower costs and peace of mind that comes with knowing you’re borrowing smartly. Ascentra is here to help. Before taking out your next loan, consider if a HELOC is a better way to borrow the money needed. Reach out to one of our dedicated Home Equity Specialists to learn how a HELOC may be a better way for you to borrow. Get started at ascentra.org/heloc.
