A CNNMoney piece looks at the rise of payday lending in Ohio, aided (or perhaps exacerbated is a better word) by the subprime debacle that has given many home owners with toxic mortgages difficulty making their payments.
While people probably aren't using payday loans directly to pay their mortgages, that's the net result: Soaring monthly payments are eating up a big chunk of their paychecks, and they're resorting to payday lending to pay for other expenses.
The problem with that is that, on an annualized basis, interest rates on payday loans can end up being well over 400%. However the lenders counter, not wrongly, that the loans are not meant to be used for a year so quoting an APR is meaningless -- They charge a service fee for a short-term cash advance.
But subprime homeowners who find themselves resorting to payday loans to keep their homes are probably making a big mistake: If you can't afford the monthly payments on your home, you should probably give it up. And if, like many subprime borrowers, you have only a tiny chunk of equity, and in some cases no equity, it isn't really your house.
Taking out high-interest toxic loans to try to stay current on a high-interest toxic mortgage is probably not intelligent in most cases. Foreclosure is probably down the road for these homeowners, and adding additional debt to postpone it only makes things worse.
Here's something I haven't heard anyone in Washington, which has engineered a bailout of homeowners with terrible credit scores and less than 3% equity in their homes, say: People who have no equity aren't homeowners, and it's probably best to just let them lose their houses, since they aren't even theirs.
Photo from Flickr:
http://www.flickr.com/photos/ellievanhoutte/993553482/
Twitter valuation off by half: NeXt Up Research
Comfort Zone Investing: The unmighty dollar
Five winners of a weak dollar
Reader Comments (Page 1 of 1)
2-08-2008 @ 1:46AM
James Smith said...
For your Online Loans, you can also try Payday Loans Online - A personal loan resources and financial services portal plus an online directory for financial products and services. We have every kind of personal loan imaginable. The following sites promote what they think are the best companies for your personal loan and financial needs. These sites rate their recommendations for customer service, speed, best rates, best payback terms, security, and ease of transaction.
12-15-2007 @ 3:47PM
SANTA'S HELPER said...
Sadly... many borrowers are just picking straws and hoping for the best! But how long can you survive this way? go to: www.loancomplianceadvisorygroup.com
12-16-2007 @ 8:25PM
Alex Esguerra said...
People are generall good and trustworthy. They do everything they feel is right. Only if you been in the situation that you would understand, why and yes it is stupid for some but not for others.
www.alexesguerra.com
www.adleinternational.com
12-17-2007 @ 3:18AM
No Faxing Payday Loans said...
No Faxing Payday Loans [http://www.nofaxingpaydayloansz.com] is a trustworthy online payday loans services provider in the US. No Faxing Payday Loansz is associated with a network of prominent lending institutions and banks in the US, which aim to offer you with feasible payday loans deals.
12-22-2007 @ 3:47AM
Hank said...
The truth is that many of these subprime loans were bought by people who:
1) were entitled to a better type of loan, but the lender made more commission money on the subprime loan
2) really can't afford to pay for the loan they bought
The fact that the US economy is on the brink of collapse should not concern these people. What the subprimers should do is default on their loan -today-. Not tomorrow, next week or sometime in the next year. Default today. They're not going to keep the house anyway.
Of course, that means that all the structured investment vehicles that were designed around these bad loans [yeah, you're a top-ranking Armani Suit with a very expensive education, what's your idea of making a lot of money: lend people money they can't afford to pay back. How's that working out for you?] are going to tank in a massive way. As a result the banks that are now trying to stay afloat by getting help from the Federal Reserve [isn't that sweet, when they need help they get to tap into the unending money supply, when the subprimer needs help he gets to take a payday loan, and he's screwed anyway] are going under. There is a limit to the amount of debt they can cover and the amount of credit they have is here, the amount of debt they have to cover is -----------------------------------------------------> way over here.
The subprimers could have done better by getting a smarter loan. However, the deck is stacked against them [it always is] and now they have a chance to have the banks experience what being in a shitstorm really feels like.
People: dump the debt, you can't afford it. You tried, you are honest, it's not your fault. Default on the debt, rebuild your life.
Have a merry christmas, and a debt free new year.