Cycle Of Loans : The Loan Industry

872 Words May 5th, 2016 4 Pages
Cycle of Loans

The payday loan industry operates with fees, and relies on repeat business from their customers. Once someone receives a payday loan, they become harder to pay off. For example, assume Bob makes $400 dollars a week, and his weekly expenses are 350 dollars a week, but he needs to pay $200 dollars to fix his car. Bob obtains a payday loan for $300 dollars, which was the smallest amount, and receives $255 dollars to pay for his car repairs. Now come Bob 's next payday, he only gets a $100 dollars which means he doesn’t have enough money to pay for his weekly expenses. Bob is forced to roll over his loan or take out a new loan in order to survive. This causes the loan to continue to grow in size, until said loan is now for a thousand dollars, and Bob needs to borrow money in order to pay it off. These loans are essentially a financial trap that are practically impossible to escape from without outside help. As stated above, payday loans mostly operate in low income areas, which are statistically composed of people who are lack an education and thus do not understand how banks work. The borrowers see payday loans as a good deal, and most residents of low income areas do not have the credit necessary to qualify for a loan from a bank. (Find a quote )

Car Title Loans

With state governments slowly enacting legislation to restrict the payday loan industry, companies are adapting to these laws by offering car title loans. The practice of car title loans is a…

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