Credit Basics
Credit Professionals Advise Against Loans
By Eric Paul Erickson
Record Staff Writer
Monday April 15, 2002
They seem to be everywhere these days. All over Roswell, and so tempting in these less than promising economic times.
Check cashing and loan businesses.
Whether it¹s an advance on your paycheck
or a loan using the title of your car as collateral, to many, it¹s the only option
to make ends meet.
But before you sign over that paycheck or the pink
slip on that hot rod, think about the situation you¹re getting yourself into.
"These establishments are actually growing like
weeds," explains Rudy Cavazos, director of Corporate and Media Relations for Consumer Credit Counseling Service.
A survey of some local loan agencies showed fees
that ranged from 22 to 25 dollars on each $100 contracted.
Due to the fact these fees are not expressed as
percentages, loan agencies are able to avoid certain usury laws.
Howard Dvorkin, president of Consolidated Credit
Counseling Services Inc., says he has come across much higher fees. "I've seen 200
percent," he says. Consolidated is another avenue for people with financial difficulties.
But why do people pay these exorbitant fees? "They
needed the $300 to avoid having their electricity turned off," Cavazos says with
a tinge of pity in his voice. "That only confirms the fact that too many of our
consumers are living paycheck to paycheck." The advancement of payroll checks is
not only the domain of the loan agencies, which by United States Department of the
Treasury statistics have risen in number by 600 percent since 1986. Banks have begun
the practice as well.
"Because that¹s where the money is," explains Dvorkin.
Cavazos and Dvorkin both warn individuals to fully understand what they are getting
into before they enter into a contract with a loan agency.
"It's really buyer beware," Dvorkin says. "This
is a last hope desperation move." Cavazos concurs. "Payday loan entities have to
be avoided as much as possible."
The first piece of advice is only go to a check
cashing
service as a last resort. "Beg and borrow from someone you know," suggests
Dvorkin.
Cavazos says individuals should take a good hard
look at their finances over the course of 30 days. "These consumers just need to
stop and take care of their financial house and place it in order," he says.
If after all of this you feel you have no other
choice than to use the services of a loan company, the counselors urge people to
be clear on what you are getting into.
In short: understand. "Understand what you are doing.
Understand if you default what happens. Understand the fees," explains Dvorkin.
Another factor that is often overlooked is where
these types of loans factor into a bankruptcy. If an individual declares bankruptcy
while still owing on loans, they may or may not be covered. Often a loan based upon
a paycheck will be covered, while what is called a "secured creditor", such as a
title loan, is not.
"If you default," says Cavazos. "They will take
your car." "Absolutely. They would take your car," Dvorkin agrees.
Dvorkin explains if you decide to take out a loan,
it's better to do it with a larger company because usually they are more reputable
and are known to follow the laws closely.
"Larger places have more to lose if they get shut
down," he says.
Cavazos also
warns people against rolling over loans
from one paycheck to the next, a problem Dvorkin has seen escalate. Dvorkin says
he has seen cases of people take loans on a single paycheck in five different loan
companies in the course of one day.
If payment problems arise, Dvorkin and Cavazos suggest
talking with the agencies instead of defaulting or exploring other options, especially
on title loans.
They explain these agencies are not in the repossession
business. They are in the money
business and to top it off, they will get what is
owed them.
"They are the hardest core collectors you¹ve ever
seen in your life," Dvorkin says.
If you have questions about your credit problems
you can contact Consolidated Credit Counseling Services, Inc.™ at 1-800-728-3632.
