On Predatory Lending: Personal Spend Matters!

- June 20, 2014 11:00 AM
Categories: Friday Rant | Tags:

Since a SCOTUS case in 1978, usury laws have been rendered more or less toothless in the US, and in the process practically given all of us credit cards in our cereal boxes, but still, take a look at this offer of a “fast & affordable” loan – at a mere 29.99% APR!

Springleaf usury

The payment plan results in paying over $2,200 in interest on a $4,250 loan. As much as I get the concept that a fool and his money are soon parted, this is just evil. Shame on Springleaf.

The Better Business Bureau shows a rather dismal record for Springleaf – nearly all feedback is a dismal 1 star.

What kind of financial straits would you be in for this to actually lower your monthly payments? If men in striped suits carrying lead pipes are knocking on your door perhaps, but otherwise?

My advice is to sign up with PenFed and you will get a used car loan for below 2% APR… that’s how I spell affordable.

Since my own credit score is around 800, why Springleaf felt the need to waste money on sending me this “offer” is puzzling. Then again, if you rake in 30 percent on all loans made, I guess you can afford shotgun marketing.

However, just like all those emails with African ministers of finance needing a few bucks to get their millions out of Switzerland, people must fall for this too. Sad.

Comments

  • Peter Smith:

    Thomas
    Have you come across “pay day lenders’ in the UK context? Wonga have built a business based on (very) short -term loans with eye-watering APRs. This is from their website:

    “Representative example

    Amount of credit: £150 for 18 days. Interest: £27.99. Interest rate: 365%pa (fixed).

    Transmission fee: £5.50. One total repayment of: £183.49. Representative 5853% APR”.

    Yes, that is 5,853% APR!

  • seventhcol:

    Let’s say this person has a 640 credit score and let’s say 33% of people with 640 credit scores don’t pay back their loans. If Springleaf make 3 such loans, and 2 are paid back, they will get ~$13,000 on those 2 loans combined and $0 on the other one. So they lent out $12,750 to get back $13,000. Their profit was $250 on $12,750 lent out (or a return of 2.1%, or an average annual return of Springleaf of $0.7%). Seems downright charitable to me.

    • b+t:

      Well yeah, if you invent the statistics any APR can look fair.
      You could equally say that 10% default, 10% pay only half, and 10% get trapped forever in lucrative rollovers.

      I wonder if Wonga’s purchasers have CIPS.

    • Kerry Anderson:

      Actually, Springleaf takes collateral for their loans so once they are done selling your house, your car, or your jewelry, the loss ratio is closer to 5% and the profits are huge. The 2 top execs (who used to run a subprime mortgage biz) made over $100 million in compensation last year preying on the less fortunate or the less financially savvy among us. No moral compass.

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