What Predatory Loans Will Cost You
Summary
Over 1,000% APR. Hidden refinance fees. Automatic renewals. In this episode of Small Print Made Simple, Daynor takes a closer look at a real payday loan agreement—one so deceptive, the Federal Trade Commission actually sued the lender.
Daynor unpacks how a $250 loan ends up costing over $100 in fees, how shady renewal clauses get buried 11 paragraphs deep and how predatory lenders trap people in long-term debt through rollovers and refinancing tricks.
This is the kind of lending Possible was created to challenge. We offer transparent credit-building loans with no rollovers, no late fees and no hidden costs. You get payment flexibility, no penalty fees and the breathing room you need—without the trap.
Transcript
[DAYNOR]
This example was so shady they actually got sued by the federal government. I wanna walk you through the very reason that Possible Finance was started to fight back against some of the predatory lending practices. Here is a payday loan agreement. Let's take a look.
[JARGON MAN]
We've got an annual percentage rate, APR. That's the cost of your credit as a yearly rate of 1,130.92%.
[DAYNOR]
Wow. Over a thousand percent APR. Keep in mind that an APR is an annual percentage rate, so that is a statement of the cost of credit over the course of the year. For many payday loans, the term will never reach a year. So the APR can be a little bit misleading and overstate the cost of credit.
However, for a lot of predatory lenders, the APR is the right metric because they allow you to renew and roll over your loans, and often the term can go well beyond a year.
[JARGON MAN]
Then, a finance charge, the dollar amount the credit will cost you of $116.19 cents.
[DAYNOR]
So it looks like you're paying $116.19 cents just to borrow $250.
That is a very expensive loan. But then a full 11 paragraphs below it says,
[JARGON MAN]
"Refinance policy: Unless otherwise notified your account will be debted the minimum amount due to refinance this loan for another term."
[DAYNOR]
Whoa, that sounds extremely sketchy to me. I have a lot of questions. What is a renewal fee?
What does this mean? Why is it hidden 11 paragraphs below all of the financial information, like they wanna hide it from us. And keep in mind, these payday loans typically have a 14 day term. You have to pay the whole amount back or it will refinance or renew, or whatever this paragraph means. And because this example was so shady, they actually got sued by the federal government, the Federal Trade Commission sued this lender. They were trying to trap customers, and I think customers deserve better. We started Possible to put an end to these types of predatory lending practices. You can borrow from us, pay us back over time, build your credit history and we do not charge late fees. We do not charge NSF fees.
We will not penalize you. We don't allow rollovers or renewals. You can extend your payment up to 29 days with no credit impact to give yourself breathing room. This has been an episode of Small Print Made Simple. Follow us for more.
