Title Loans or Swimming with the Sharks

Can sharks live out of water?  No you say?  Well I am here to tell you the answer is yes!  Just ask anyone that needs some extra cash quickly.  The sharks started swimming in the deserts of Arizona around 2000 when payday loan companies invaded Arizona.  Payday loans offered quick cash to those who could afford it the least.  Payday loan companies would lend consumers money against their next paycheck.  When you live paycheck to paycheck how can you afford to pay off the loan?  You can’t and that’s what makes these loans so dangerous to consumers.    Just like sharks, the loan would continue to feed upon the consumer’s paychecks as the high interest rates compounded.  They were allowed, by law, to charge more than the 36% annual cap that banks and other lenders had to follow.  In 2010 this feeding frenzy came to a sudden halt for those companies offering payday loan.

The shark attacks ended?  Wrong!  The sharks are still here but call themselves by another name.  Queue in the music from Jaws please, the new shark in town is the title loan.  This shark is sneaky.  If you Google title loans you will see a variety of places to choose from.  One ad claims the company only charges half of the allowable rate.  The ad cleverly says the MPR is 5%.  A good rate our consumer says!  Notice it says MPR (Monthly percentage rate) not APR (Annual percentage rate).    So what does that mean?  It means the interest rate is 60% per year, so if you borrow $5001.00 and it takes you a year to pay it off you will be paying approximately $1769.52 in interest charges!  Now just think what that means if you don’t use this company and you go to one that charges the maximum allowed by law for the same $5001.00 loan you will be paying approximately $3805.80 in interest!  You may be thinking that you don’t need that much money.  That you can swim fast so the shark won’t get that big a piece of you?  The less you buy the more they charge.  Arizona law allows these companies to charge:

Loan Amount                     MPR      APR

$1.00 to $500.00             17%     204%

$501.00 to $2500.00      15%     180%

$2501.00 to $5000.00    13%     156%

$5001+                               10%     120%

As an advocate for consumers, I would caution you to try other options before using this kind of loan product.  If you don’t, you may end up as shark bait!

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