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 demonstrates, however, that they frequently lead to debt that is nearly impossible to escape. In addition, these loans 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 loans, the end result is too often the repossession of the borrower’s car, a critical asset for many people.
Payday loans and car-title loans are marketed as an infusion of cash to financially struggling people. In reality, these loans often 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 each year in charges on unaffordable loans to borrowers who have an average annual income of approximately $25,000.1 This fee drain hampers future asset-building and economic opportunity, with a pronounced effect felt in communities most impacted by these predatory lending practices.
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