With checks likely coming soon, hold off getting a loan or look at options at 36% or less APR
By Brent Adams
How much and how soon are still open questions because of the dispute between Congress and the President over the COVID-19 relief bill, but there’s little doubt that most Americans will be receiving another round of stimulus payments. The payments give Chicagoans another good reason to steer clear of payday and auto title lenders whose high-interest-rate loans can hurt consumers more than they help.
The data for 2019 shows that the payday loan business in Illinois was up about 10% in December as compared to the rest of the year – presumably due, in large part, to holiday shopping.
But a payday loan can turn a holiday dream into a new year’s nightmare when repayment comes due. The most important advice is to avoid products that charge more than 36% Annual Percentage Rate, APR, which is the actual cost to borrow the money.
A case in point, Chicago borrower Kesha (last name withheld by her request) received a title loan in January 2020 for $1,200 to help support her small business. She has paid back three times that much–more than $3,000– so far and still owes money.
Kesha received a title loan in January 2020 for $1,200 to help support her small business. She has paid back three times that much–more than $3,000– so far and still owes money.
According to data from the State of Illinois, the average APR on a payday loan in Illinois – before COVID-19 – was 296%. Research shows that loans with triple-digit interest rates trap people in a cycle of debt, worsening their financial situation.
The need for cash is natural at this time of year, even more so due to COVID-19. For people who need cash now, we encourage you to consider if you can avoid taking out a loan at all.
If, after reviewing our tips, you still need to borrow, you should shop around for the best terms you can find.
Before seeking a loan
Now that Congress has approved another round of COVID-19 relief– expected to move forward or even grow due to the President saying $600 is not enough–many consumers will see payments hit their bank accounts as soon as January.
It’s likely updated information will be in the news, and posted to a website hosted by Woodstock and other nonprofits, GetMyPaymentIL.org.
- If you cannot afford essentials, consider seeking assistance from friends or family. If ever there was a time to ask for help, now is it. (If you are financially secure, reach out to friends or family who may be experiencing hardship).
- Before seeking a loan, contact creditors and any companies that deduct money from your accounts by auto-pay to request “COVID relief.” Many creditors are set up for this and offer a temporary hold or payment freeze.
- If they do not offer this option, you can likely “revoke authorization” for the auto-pay deductions. The company is legally required to abide by your revocation.
If you must borrow
A payday loan can be easy to get in to, but hard to get out of. If you must borrow, a little research can save you a lot of money and could keep you from falling into a debt trap.
- First, check with your bank. This site maintained by the American Bankers Association has a list of hundreds of banks providing COVID relief.
- Consider a loan from a Community Development Financial Institution (CDFI). Capital Good Fund, a non-profit CDFI, offers eligible Illinois residents a crisis loan that charges 5% APR, with no payments and no interest charges for the first 3 months.
- Cash advances from credit cards can be easy but expensive–but still less expensive than a payday lender. Check the credit card’s website and/or contact the credit card company to find out about available options.
- Online lenders vary wildly, but some have better rates and terms than most storefront lenders. Members of the Marketplace Lending Association adhere to responsible lending standards that include charging at or below 36% APR. Nerd Wallet has a function that allows consumers to compare loan products.
This is a constantly evolving situation. Sharing knowledge will help us protect our families, communities, and country–if you have an especially good or bad experience with a financial institutions, e-mail email@example.com.