There’s been a change in the payday loan landscape over the past five years. Payday loan storefronts have almost disappeared and the dangers of a quick loan seem to be widely known. But there’s trouble lurking on the Internet. A new form of payday loan has been trapping America’s middle class and it’s not going to vanish any time soon.Installment loans are the new payday loan and they’re every bit, if not more, as dangerous. Installment loans offer Americans with decent credit a quick way to purchase large items through monthly payment plans. These loans are directly targeted to working Americans that have mounting debts and stagnant wages and they seem like a fast and simple way to make ends meet.
We want you to know that installment loans are not a good financial choice. Here’s why.
Billions In Debt
According to new data released by credit reporting firm TransUnion, many Americans with average credit now owe billions of dollars to installment lending companies. These companies offer quick loans through the Internet to Americans with steady credit -- these are not bad credit or poor credit loans.
Why are Installment loan companies targeting Americans with average credit? Simply put: wages have not risen enough over the past decade to keep up with the ever-growing cost of living. So while your groceries will cost you double or triple what they did ten years ago, the wage you are taking home may no longer be enough.
The imbalance of wages to the cost of living means that many Americans are looking for ways to purchase items like cars, houses, and everyday goods. Predatory lenders know that Americans are struggling and they are looking to capitalize on it (hence, the installment loan).
The Fine Print
Because installment loans range anywhere from 4 to 60 months (and possibly longer), the amount of money consumers are allowed to borrow is much higher than it was with a payday loan. In exchange for a bigger loan, installment lenders add on high-interest rates -- some of those rates are excessive, to say the least.
Lenders argue that the higher interest rates are required to ward off borrowers that will likely default (due to the high-interest rates). For these companies, it’s business as usual (and a sneaky way to keep the lending business in business), but for borrowers that only see the tempting “pay in small installments” advertisements, falling prey to an installment loan is a debt trap we want you to avoid.