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BUSINESS Friday 27 december 2019
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5 Signs an Online Loan Is a Debt Trap

Associated Press and total interest of $4,299.
As you scan the crowded ALL-IN-ONE PAYMENT RE-
pages of Google search QUIREMENTS
results for a low-cost loan, it A predatory lender may
can be difficult to decipher have repayment terms that
reputable lenders from require a single payment
predatory ones. or a handful of small pay-
These lenders, who use ments, then a lump sum,
abusive or unfair prac- also called balloon pay-
tices, offer loans with high ments.
rates and excessively long The average payday loan
or short repayment terms takes 36% of a borrower's
that make the lender mon- paycheck, Horowitz says.
ey but leave the borrower If a borrower can't go with-
with a loan they may not out that income, they might
be able to repay. take another payday loan
Payday loans are a com- to make up for the cost.
mon type of predatory A reasonable loan repay-
loan: About 12 million ment plan should center
Americans take them on a consistent share each
out every year, says Alex paycheck, rather than a
Horowitz, a senior research balloon payment, he says.
officer with the nonprofit In this Aug. 11, 2019, file photo an iPhone displays a Facebook page in New Orleans. GETTING OUT OF A PREDA-
public interest group Pew Associated Press TORY LOAN
Charitable Trusts. These Borrowers who have a
short-term, high-interest easy (to get a loan), then it's states and federal agen- Consumer Law Center. predatory loan can try a
loans can trap borrowers in a red flag," he says. "Some cies because it gives bor- "If you have to hunt for (the few avenues to get in bet-
a cycle of debt. pushback is positive." rowers a fair chance at re- APR), that's a red flag," she ter financial shape.
"Consumers fare best when FOCUS ON MONTHLY PAY- payment and incentivizes says. — REFINANCE THE LOAN: If
they have affordable pay- MENTS lenders to offer affordable EXCESSIVELY LONG OR borrowers have somewhat
ments — when they have a Lenders that advertise low loans, according to a 2013 SHORT REPAYMENT PERIODS solid credit, Kingsley says,
clear pathway out of debt," monthly payments on a report from the National Payday lenders typically re- they may be able to pay
he says. loan without mentioning Consumer Law Center, a quire a borrower to pay the off a predatory loan with
Knowing what makes a the APR or loan term should policy-focused nonprofit loan back within a week or another loan from a repu-
loan dangerous can keep set off an alarm, Kingsley that serves low-income two. But some lenders offer table lender. Many credit
borrowers from falling into says. people. small loans with high APRs unions offer low rates to
a debt trap. Here are five Lenders may do this to dis- Many payday lenders and excessively long re- borrowers with undesirable
signs of a predatory loan. tract from the loan's term charge APRs well above payment periods, Horowitz credit.
NO-CREDIT-CHECK ADS and rates, he says. 100% and may not make says. These loans can leave — SEEK FREE ADVICE: You
Some lenders advertise Because predatory lenders that explicit on their a borrower paying more in may be able to find a non-
loans that don't require offer loans with high fees homepage, Rios says. fees and interest than the profit legal aid office in
a credit check, meaning and interest rates, borrow- If you can't see an APR amount they originally took your area that offers free or
the lender doesn't obtain ers should focus as much range anywhere on the out. inexpensive legal consulta-
information about the bor- on the full cost of the loan lender's website, you should For example, a $1,200 loan tion, Rios says. Another op-
rower's financial history and — which an APR represents be cautious about doing with an 18-month repay- tion may be to search for
can't gauge their ability to — as the monthly pay- business with them, says ment period and a 300% a credit counselor to help
repay the loan. ments. Lauren Saunders, associ- APR would result in monthly you determine the best
Predatory lenders will often SKY-HIGH RATES ate director of the National payments of about $305 way forward.q
charge a much higher an- The APR on a loan shouldn't
nual percentage rate to come out to more than
make up for the borrowers 36%, says Charla Rios, a
who inevitably default on researcher with the Cen-
their loan, says Brad Kings- ter For Responsible Lend-
ley, a South Carolina-based ing, a consumer advocacy
financial planner with Cast group.
Financial. That maximum rate has
"If they're making it super been affirmed by multiple