What These Loan Companies Are Doing Will Make You Cringe
If you don’t know about the dangers of payday loan companies, you gon’ learn today! These shifty establishments have played a considerable role in perpetuating lasting cycles of debt in the Black community, and here is what you should know about them.
Payday lending companies disproportionately show up in low-income, predominantly Black, neighborhoods. Over 24 percent of African-Americans fall below the poverty line (compared to 9% of whites).
Loan agencies are aware that members of these communities are more likely to find themselves in a financial bind and be enticed by the idea of “quick cash” that can be paid back in the future.
With that said, Blacks are three times more likely than whites and twice as likely as Hispanics to acquire payday loans. This is due, in part, to need but access also contributes to this startling statistic.
Lending agencies are 8 times more likely to be found in Black neighborhoods than white or Hispanic ones.
Payday loans are disguised as a great option for emergencies or unexpected expenses. However, the truth is nearly 70 percent of borrowers admitted using these funds to cover recurring monthly bills such as rent and utilities.
This means people are not just poor and making bad decisions, but quite the opposite: these are hard-working folks, often juggling multiple jobs, who are still having a hard time making ends meet.
So, what is it exactly that makes these short-term loans so detrimental to our communities?
We are literally paying hundreds of millions of dollars in interest fees each year and it is crippling the Black economy. On average, borrowers pay a $15-$20 fee per $100 with the typical loan hovering around $400.
The real kicker is that many people who borrow from these lenders are not able to repay their loans back within the standard 1-2 week timeframe, which means even more fees.
The estimated APR on these funds is up to 500%. So, over time, if these loans go unpaid the interest will quickly add up to far more than the initial amount borrowed.
Given these circumstances, it is easy to see how a cycle of dependency on payday loans could form in families struggling to meet their basic needs. It can be embarrassing and uncomfortable asking friends and relatives for money.
Therefore, it is quite possible that these loans are seen as the only option for those just trying to stay afloat.
While certain states have cracked down on payday lending companies and tried to cap interest rates, we cannot depend on them to protect our interests and wallets –we must be financially educated.
We have a responsibility to self-educate and share what we learn about financial literacy with our friends, families, and children if we want to strengthen our communities.
One great resource to get started on the right financial path is the work of Dr. Boyce Watkins. He has developed entire programs and written several books geared at specifically teaching Black people essential financial concepts and steps towards wealth building.
Feel free to share additional resources in the comments as well!
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