The Center for Responsible Lending has warned federal lawmakers that predatory loans have long-term and damaging effects on vulnerable communities. In the report, The Cumulative Costs of Predatory Lending, it is argued the long-term effects of predatory loans exceed the short-term consequences of high interest rates and hidden fees.
For example, the long-term effects of poor credit scores and lost equity from being unable to own homes has greater costs than excessive monthly payments resulting from high interest rates. Communities affected by predatory lenders are unable to get out of the “rut” that damaging loans impose upon them. Long-term effects of damaged credit from predatory lending have expensive hidden costs. According to the report, borrowers with poor credit ratings had to spend an extra $4,000 when signing loans to finance new cars.
In addition to lost economic opportunities resulting from poor credit and no equity, the report found that most borrowers with predatory loans have more than one type. Research from the report found evidence that 54.4 percent of consumers with car title loans also have payday loans.
Predatory lending can refer to different types of loans, not exclusively payday loans. Long-term car loans with high interest rates and adjustable mortgages can also fall into the category of predatory lending.
What Options Are Available For Borrowers Trapped By Predatory Lending?
If the report is correct, it could give more details as to why escaping the consequences of predatory lending can be exceptionally difficult. However, there are solutions available to borrowers stuck with predatory loans. Depending on the situation, filing for Chapter 7 or Chapter 13 bankruptcy can reduce the monthly costs or discharge the loans altogether.
As we have seen in this report, the long-term effects of predatory lending can last for years. By filing for bankruptcy, people can escape a never-ending cycle of debt.
The Sader Law Firm – Kansas City Bankruptcy Attorneys