Pawn brokers, fast cash establishments, and car title loans are different faces put on the same problem. These are questionable businesses that count on customers not being able to pay off their loans. The idea is to recover the principle fast and collect interest on the interest. If dealers can get three or four interest payments made, the loan amount represents profit. If they have to sell your goods or your car, they often make considerably more.
The scenario plays out like this: You have weak or bad credit. Now, you are short of cash and need some quick. As you drive along, a sign catches your eye. In one way or another,it says that you can get cash quick if you have a clear title to your car. Almost on its own, your car turns into the driveway. Reaching in the glove compartment, you pull out your car title.
Someone behind a secure counter flashes you a wide grin as you step through the door. You slide your title across the counter. A few words are exchanged. You watch as the money is counted out bill by bill. You signed a note but did not really read it. It did not matter to you what it said. The only thing in your mind was getting the money. Holding your cash in one hand and the loan papers in the other, you stroll from the business back to your car.
At least, you can buy groceries and take care of a few other items. After the money is spent, you realize that you may have just lost your car. To keep your car, you will have to repay the loan plus 20 percent interest or more in a month. If you do not lose your car, you may be on the hook paying on this loan for a long time and never find it paid in full.
That is the way almost all easy money loans operate. The fast cash type of stores of today replace the loan sharks of yesterday. In some cases, their tactics for collecting the debt are not much nicer. The lenders claim that the exorbitant loan rates of 300 percent per year or higher are necessary to be able to turn a profit.
For people who are financially afloat, it is hard to understand the mental state that drives a person to even consider doing business with these establishments. Those who are not hurting financially still have friends, relatives, and banks to call on when and if money becomes tight. The victims of these businesses have exhausted all revenue possibilities long ago.
Once the initial loan is created, most of these quick loan business do not care if you ever manage to pay off the principle. Their hope is that you will keep rolling the note over by just paying the interest. In some cases, you may even be encouraged to let all or part of the interest ride until the next payment. This only digs the hole deeper.
There are a few people who get in a pinch and borrow this money until a tax refund or other lump sum arrives. Most of the time, they are able to retire the loan and move on with their life. If the lump sum does not materialize, these people are sucked into the same financial black hole as everyone else who does business with these institutions.
It is really best if you just take it on the chin financially or let your pride get bruised by finding another way to get through your tough time. Visit a food pantry if you are hungry. Go to a shelter if you need a roof to sleep under. Let your kids live with relatives for a few months until your feet are back on the ground. The only way to avoid the nightmare of this type of debt is to just say no to yourself when temptation comes along.