We live in a society that is filled with opportunities and, unfortunately opportunists. That is not to imply that all opportunists are bad. Quite the contrary, it takes opportunist to build upon and grow our economy. Angela Duckworth describes in her book Grit: The Power of Passion and Perseverance, people who have the character and drive to do just that. However, there are those, that possess grit, that will take advantage of their position over the disadvantaged.
I have been a Financial Services Manager for the better part of twenty years. I have seen a lot of change in the industry over that time. One in particular would be the change in the effect of student loans on a person’s credit. Today if you have student loans they can have a major impact – either positive or negative – on your credit report. About a decade ago, no one paid attention to student loan debt. But that is not the issue that I would like to discuss.
Bad things happen to good people. An unexpected illness, a car accident or even a weather event could cause you to miss just enough work that you just need a few bucks to tie you over. So you visit the local short term lender. You fill out an application; put your TV and lawn mower up for collateral and leave with $700. You sigh with relief. You don’t have to worry about choosing between groceries and the power bill.
Here is what happens next. A few months go by, you have paid the lender well – good job. Your phone rings. “Hey thanks for your timely payments. I just wondered would you like to renew your loan? We can pay your current loan off and loan you $800 this time – that would give you $200.” Now here is what you are thinking. “I could use that $200, I can take the kids to Alabama Adventure. And I’m building my credit!” So you tell the nice fella on the other end of the phone you will be right down. A few more months come and go and now it is almost Christmas and you get that same phone call. This time he is going to loan you $900 which means you are going to have $250 to spend for presents for the kids. And you are building your credit!?
Let me tell you what happens next. You have had these three loans with the local short term lender over the course of a year. You think you have built up your credit; because you have made all of your payments on time! You just got your income tax refund of $1800. That 1998 Chrysler is smoking and the transmission is slipping. You are ready to go buy you a new ride. You come see me.
Here is what I get to tell you. “I’m sorry, the major lenders we use think that since you have been using the local short term lender so much that you are struggling to get by. They think it is a payday lender.” I have to let you go down the street to the Buy-Here Pay-Here. That does you no good. That is even where the Chrysler came from.
Here is the problem. The major lenders have a perception that may or may not be true. You took advantage of a lender that was willing to help you when you needed it and then they took advantage of you when you really did not need the help. They were opportunistic and most likely lead you to believe that what you were doing was helping yourself. I’m not sure but I think that all three of you are wrong in this scenario. I will explain:
How you are wrong: You needed help and excepted it from the only business that would provide it. However, you did not educate yourself. “Am I really benefiting myself by getting this second loan or would it be better to pay this one off.” Remember the interest rate you were paying was in the twenties. The internet if your friend. There are so many sites that offer opinions and strategies.
How the local short term lender is wrong: They offered to renew your loan not once but twice. Yes, they are in business to make money, but they should have some degree of ethics. They should at least refer you to some consumer information before continuing the renewal of these predatory.
How are the major lenders wrong: They need to understand that bad things happen to good people. Not all short term rolled loans are “pay day” loans. Some are just what they are as in the scenario I have described.
I make my living by securing financing for automobile consumers. Integrity is the one thing that I own that I refuse to lose. I am proud to say, after all these years mine is still intact. That is the reason that I do not understand why or how anyone can take advantage of the disadvantaged. If there is one thing that our school systems need to put in the curriculum it is personal finance. It does not need to be taught by a “school teacher.” It needs to be taught by a business professional.