Online lenders target the middle class
SOUTHERN FLORIDA – With stagnant wages and a significant increase in the cost of living, America’s declining middle class is often forced to close the credit gap, a cycle that can quickly spiral out of control.
Since 2008, the middle class has seen little or no pay rise. A CNW survey found that the average annual increase in wages among middle-class Caribbean Americans in South Florida has increased by an average of 2% over the past two years, ranging from 3.5% at 1.5%.
Meanwhile, the cost of living has skyrocketed, supported, according to Bloomberg, by 26% of housing costs, higher for those who rent; 33 percent increase in medical care and a whopping 47 percent in college education.
The overall result is that only 13% of those polled had disposable income after paying off their monthly debt, and a worrying 29% were in a hole with insufficient funds to support the purchase of groceries and pay the monthly bills. of public services.
With personal loans from commercial banks hard to come by, most are turning to relatively new types of lenders, online installment lenders, to make ends meet.
Caribbean-American Audley, who lives in Tamarac and earns $ 49,000 a year, bought her house two years ago but struggles to pay the bills every month. With a credit score of 705, he was offered and applied for a $ 10,000 loan online. Within 24 hours he was approved for $ 7,330, forcing him to repay $ 274 per month over 36 months.
âIt was such a relief to get the loan,â Audley said. The first months, I made the payments easily, but finally, I was again in difficulty and in a worse situation, especially since the repayments are obligatorily withdrawn monthly on my bank account. I am now considering filing for bankruptcy.
While low-income Americans tend to look to traditional payday lenders for up to $ 500 repayable the next payday, these online lenders attract borrowers with email loans ranging from $ 1,000. to $ 10,000. The loans are repayable over much longer periods, usually between 12 and 36 months, but at astronomically high interest rates. CNW found that some people on these loans made repayments with compound interest rates of up to 36% per year.
When people are strapped for cash, with growing debt and sleepless nights, it is understandable that they can be easily swayed by an email offer from one of the many companies such as Plain Green Loans and National Debt. Relief, which offer large loans, a longer repayment period. and a quick and easy online application and approval process.
The basic criteria for obtaining these loans are a social security number, a job verification, a fair to good credit rating and a valid bank account. Another attractive feature is that most of these loans are offered for debt consolidation, the same solution that many middle class families are looking for.
Although these loans are relatively easy to obtain, people need to be careful when borrowing them. While loans can help with the start, repayment can increase the borrower’s level of debt and could put them on the path to possible bankruptcy.
In the first 12 months of these online loans, around 85% of the repayment goes towards interest. So, to pay off the loan sooner than expected, borrowers find that the principal balance is almost as high as the total amount borrowed.
And, as the demand for middle class credit grows, lenders are flocking to the online installment loan market.
âInstallment loans are a cash cow for creditors, but a devastating cost for borrowers,â said Margot Saunders, senior counsel for the National Consumer Law Center, a nonprofit advocacy group.
But as CNW has realized, with so many middle-class residents struggling with rising costs and stagnant wages, credit is a lifeline and a burden they’re willing to carry.