Many consumers think they have it bad paying credit cards with interest rates of anywhere from 25 to 35 percent, however this fails in comparison to what some people are paying. Recently we’ve seen the trend of pay-day loan companies and car-title loan companies charging consumers interest rates of anywhere from 400 to 600% on short-term loans, and now the practice is moving online. There are a number of online lenders which are charging interest rates at 650% interest on loans anywhere from $500 to $2500 dollars.
These online lenders have become loan sharks of the information age. Many of these lenders are creating unethical and often illegal loans to consumers. Many states don’t allow businesses to charge above a certain interest rate, but these companies still make those loans across state lines. These lenders will argue that they are taking a substantial risk by loaning money to people with bad or no credit and should be entitled to such an interest rate, but it’s still a rip-off any way you put it.
Currently there is a major court battle occurring with these companies. They are arguing that they should be able to act like credit card companies who are headquartered in states without any regulations on their business and only be subject to the laws of that state, and not any other state they do business in. The credit card companies won this privilege in the 70’s causing many banks to be headquartered in South Dakota and Delaware, which have extremely lax regulations on credit card companies. Online loan companies hope to get this same privilege so that they can charge exorbitantly high interest rates and do so without fear of reprisal from any state government.
Quite often these companies will solicit their customers through SPAM emails or through other internet advertisements. Usually they show a few happy people swimming in piles of cash and make it look like they are the number one solution to all of your financial problems. Under the ad, there’s a slue of fine print, and like most things, the devil is in the details. If you were to sign up for said loan, you will very likely get the money you want to borrow, but a few weeks later the company will want all of their money back and much more. These companies are equivalent to online payday loan companies. They’re just never a good deal for consumers.
Some might argue that these companies need to be regulated out of business, but instead we need to better educate consumers. Chances are if someone’s dumb enough to take out a loan with an interest rate of 525%, they would just lose their money somewhere else if they didn’t get it taken from an online loan shark.