Loans too good to be true

Benalla Ensign - - Community Voice - By David Rak

Loan shark­ing may have been out­lawed, but preda­tory lend­ing con­tin­ues to lurk in the murky depths of our so­ci­ety.

Like wolves in sheep’s cloth­ing, ag­gres­sive lenders of­fer­ing pay­day loans bait vic­tims with quick cash be­fore con­sum­ing them with ex­or­bi­tant in­ter­est rates and fees.

It’s hard to watch tele­vi­sion or scroll through Face­book with­out cop­ping a bar­rage of quirky ad­ver­tise­ments of­fer­ing quick cash with lit­tle, or no, ques­tions asked.

Who can for­get the help­ful rab­bit from Nim­ble of­fer­ing ‘‘smart lit­tle loans?’’

He lulls peo­ple into a false sense of se­cu­rity, as­sur­ing them ‘‘just Nim­ble it’’ is the magic phrase to soothe their fi­nan­cial woes.

A pay­day loan (also called a small amount loan, cash loan or quick loan) is a high-cost short­term loan.

Pay­day loans in­clude small amount loans (loans of as much as $2000 that must be re­paid be­tween 16 days and one year) as well as loans bor­rowed over longer pe­ri­ods.

It’s a boom­ing in­dus­try in our coun­try and all over the world — es­pe­cially the United King­dom and United States.

Un­der the cur­rent reg­u­la­tions, lenders of­fer­ing loans of $2000 or less can charge a max­i­mum of 20 per cent of the bor­rowed amount as a one-off es­tab­lish­ment fee, plus a monthly ac­coun­t­keep­ing fee of four per cent of the prin­ci­pal.

For ex­am­ple, a Nim­ble rep­re­sen­ta­tive con­firmed bor­row­ing the max­i­mum ‘‘small loan’’ amount of $2000 from Nim­ble dur­ing a 12-month loan pe­riod would cost you $1360 in fees and in­ter­est — bring­ing your orig­i­nal $2000 loan to a to­tal re­pay­ment of $3360.

You’ve ef­fec­tively paid a whop­ping 68 per cent in­ter­est for a 12-month loan — at a time when the Re­serve Bank of Aus­tralia of­fi­cial cash rate is at 1.5 per cent.

And that’s as­sum­ing ev­ery­thing is rosy and noth­ing goes wrong, should the bor­rower run into more money trou­ble and fall be­hind — that’s when the cute Nim­ble bunny rab­bit digs his claws in even fur­ther.

If you’re any more than three busi­ness days late on any one of your monthly pay­ments, you will be slugged with a $15 dis­hon­our fee.

And if you must ex­tend your loan be­cause of ad­di­tional fi­nan­cial dif­fi­cul­ties — you will be stung with a $5 daily de­fault fee for ev­ery ad­di­tional day.

This is where the pay­day loan prob­lem is rooted; com­pa­nies such as Nim­ble are pur­port­ing to solve a prob­lem while they’re po­ten­tially cre­at­ing a big­ger one.

Why bud­get and en­sure you have enough money to last the week when the Nim­ble rab­bit has your back?

These com­pa­nies are en­cour­ag­ing fis­cal ir­re­spon­si­bil­ity by of­fer­ing a get-out-of-jail-free card and then mak­ing it too big a hur­dle for too many us­ing it.

A grow­ing num­ber of peo­ple are be­com­ing trapped in a pay­day loan cy­cle as fees and in­ter­est re­pay­ments spi­ral out of con­trol.

With the money com­monly taken straight from peo­ple’s bank ac­counts through di­rect debit, pay­day lenders have easy ac­cess to the pay cheques of their cus­tomers.

Us­ing clever ad­ver­tis­ing tar­geted at the vul­ner­a­ble, the likes of Nim­ble con­tinue to fleece des­per­ate peo­ple of fi­nan­cial free­dom.

More needs to be done to ed­u­cate our so­ci­ety, es­pe­cially young peo­ple, about the dan­gers of preda­tory lend­ing and what can be done to avoid or es­cape the vi­cious cy­cle.

These lenders don’t have to break your legs a-la their loan­shark­ing fore­fa­thers — they can sit in their plush of­fices and legally break your spirit.

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