Beware of Predatory Lenders
While the Great Plains Native Asset Building Coalition is working to create economic opportunity for Native peoples, there are forces that continue to push low-income people further into the depths of poverty. Payday loans, title loans, and even rapid tax refunds are marketed as a quick and easy fix for financial problems, but they come with high interest rates and excessive fees that put a financial drain on Native people. These predatory lenders, often times located in reservation border towns, leave borrowers financially worse off with increased rates of bankruptcy, delinquency on other bills, and involuntary bank account closures.
Don’t Get Caught in a High-Cost Debt Trap
When facing the eyes of a desperate financial situation, a payday loan or title loan may seem like the only hope but there are other options. The Great Plains Native Asset Building Coalition urges Native people to steer clear of these predatory lenders.
The reality is that payday loans are a high-cost debt trap for the borrower. In fact, most borrowers stay in debt for over 200 days with a single payday loan. And while marketed as a quick one-time solution, the majority of payday lending business is generated from borrowers with 12 or more loans per year. Some payday loans have 1,000% interest rates. This is not a fair lending practice.
On average, the cost of a $400 payday loan is $1,700.
Save, Save, Save
Focus on building an emergency savings. Even if you can only set aside $5 a month, you will be better prepared to handle an emergency vehicle repair or a higher than usual utility bill. Shifting into a saving mode will help you get out and stay out of the financial crisis mode.
Seek Out Fair and Responsible Lenders
In the event that you are facing a financial crisis and don’t have savings to cover upcoming expenses, several of the Great Plains Native Asset Building Coalition’s members offer credit builder loan programs as an alternative to predatory loan products. Credit builder loans can be used to pay off debt and help build a positive credit history. Because they have a fair interest rate and a longer repayment term, it is easier to manage and doesn’t cause as much financial distress as predatory lending products. And, credit builder loans usually come with financial education to help you prepare for future financial issues.
Download, “Building Trust,” a report that explains predatory lending in Native communities published by First Nations Development Institute.