Payday and car title loans typically carry annual percentage rates (APR) of at least 300%. These high-cost loans are marketed as quick solutions to a financial emergency. Research shows, however, that they typically lead to debt which is nearly impossible to escape, and are related to a cascade of other financial consequences, such as increased overdraft fees, delinquency on other bills, involuntary loss of bank accounts, and even bankruptcy. For car title, the end result is too often the repossession of a borrower’s car, a critical asset for working families.
Payday loans and car title loans are marketed as an infusion of cash to financially struggling people. In reality, these loans typically drain hundreds of dollars from a person’s bank account in amounts well above the original loan amount. Collectively, these loans drain billions of dollars a year in charges on unaffordable loans to borrowers with an average income of approximately $25,000. This fee drain hampers future asset-building and economic opportunity in communities most impacted by these predatory lending practices.