"Pay day" loans exacerbate housing crisis - Aussie Stock Forums

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  1. #1

    Default "Pay day" loans exacerbate housing crisis


    By Nick Carey

    CLEVELAND (Reuters) - As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by.

    While figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called "pay day loans" is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.

    "We're hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments," said Uriah King, a policy associate at the Center for Responsible Lending (CRL).

    A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.

    The Center also estimates pay day lenders issued more than $28 billion in loans in 2005, the latest available figures.

    In the Union Miles district of Cleveland, which has been hit hard by the housing crisis, all the conventional banks have been replaced by pay day lenders with brightly painted signs offering instant cash for a week or two to poor families.

    "When distressed home owners come to us it usually takes a while before we find out if they have pay day loans because they don't mention it at first," said Lindsey Sacher, community relations coordinator at nonprofit East Side Organizing Project on a recent tour of the district. "But by the time they come to us for help, they have nothing left."

    The loans on offer have an Annual Percentage Rate (APR) of up to 391 percent -- excluding fees and penalties. All you need for a loan like this is proof of regular income, even government benefits will do.

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  2. #2

    Default Re: "Pay day" loans exacerbate housing crisis

    credit cards, pay day loans, etc, just to pay a mortgage. its happening here too.

  3. #3
    Happy's Avatar
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    Jul 2005
    NSW, Australia

    Default Re: "Pay day" loans exacerbate housing crisis

    Not the way to go.

    But some people probably do not know how to calculate what they are jumping into.

  4. #4

    Default Re: "Pay day" loans exacerbate housing crisis

    most people got themselves into that mess probably don't understand
    the commitment require for a 30 years home loan...

    it's not what they can afford now or 2 or 3 years but for the whole duration of the loan.

    They apply the same principle when they go to credit card and pay day loans
    yeah I can afford that now so I go for it, never stop to wonder what happen after 5 years or 10 years down the road.

    If they have any brain, they sell up and get out and hopefully they have some equity left in the place otherwise they digging into a deeper hole and they got nothing but massive debt in a couple of years.
    "cash - a call option with no expiration date, an option on every asset class, with no strike price. Warren Buffett

  5. #5

    Default Re: "Pay day" loans exacerbate housing crisis

    Has it really been so different over many years? There have always been slugs who leech blood out of the financially uneducated. Hire Purchase arrangements is one which springs to mind. Same with bridging finance for those who do not understand what it really means.

    I'm at a loss as to how you stop or legislate against utter stupidity or greed. I don't believe you can on a realistic basis because if you legislate against all risks being taken (and what is the level at which you don't?) then you simply call an end to capitalism which is based on a risk to some degree or other.

    My simpleton's view of life.

  6. #6

    Default Re: "Pay day" loans exacerbate housing crisis

    Quote Originally Posted by Happy View Post
    Not the way to go.

    But some people probably do not know how to calculate what they are jumping into.
    That's completely true, Happy.
    But people who are desperate, who literally have nothing and will get thrown out of their rented accommodation if they don't come up with the rent, will simply not think about any consequences and go to Fast Access Finance or some other similar rip off place and borrow what they need to get them through the next week. They will then pay usually up to about 70% in interest before the loan is repaid. When we ask them what interest rate they are paying, they just look blank. They have no idea.

    I saw a woman today, about 40, with two children, 9 and 7.
    She is six weeks in arrears with her rent at $220 p.w., has a personal loan which has repayments of $280 per fortnight, a car loan with repayments of $300 per month, her phone has been cut off because of an unpaid bill of $140,no capacity to buy credit for her mobile phone, an electricity account of $160. She has no job. She has a social security income of about $800 per fortnight.

    Obviously, on this basis, she cannot afford to exist.

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