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Hidden hazards of using Pennsylvania payday and car title loan services

The car title and payday loan businesses in America are multi-billion-dollar industries. Every year, thousands of borrowers are sucked into these loans because of short-term financial concerns like sudden repair bills, emergency medical treatments or to forego repossession or foreclosure. Many people assume that they will take out a small loan - without a credit check that might disqualify traditional lenders from extending them funds - and pay it off in no time. What's the harm in that?

What they don't count on, particularly if they are living on a fixed income, is how quickly the interest can mount on these loans. Whereas credit cards and traditional personal loans may have an annual percentage rate (APR) of 10-20 percent, payday and title loans could come with an APR at least 20 times that. For example, data provided by the Center for Responsible Lending (CRL) reports that Americans are paying about $3.6 billion annually in interest on their $1.6 billion in car title loans. More than half the states in the country have disallowed these types of businesses; Pennsylvania, however, is one of the 21 states where they are still legal.

Adding insult to injury

Not only do these types of loans fail to resolve short-term financial issues, they most often make the overall financial picture much worse for borrowers. That is likely why car title and payday loans are of concern to consumer debt advocacy groups like the CRL and the Consumer Federation of America.

A 2013 joint study performed by those two watchdog organizations shows that the average title loan is initially for less than $1000. The problems come in when consumers cannot pay the loan off - in full - quickly. They are then forced to renew or "roll over" the loan for a longer period. In fact, the study found that the average title loan is renewed eight times, subjecting the borrower to triple-digit interest fees. This will transform an initial, more manageable loan of $951 into a whopping $3,093 after interest is calculated over the life of the repayment period.

Payday loans are just as dangerous for the average consumers. These loans are secured by a post-dated check written by the applicant. The lender holds the check and agrees to not cash it until the applicant's next pay day. Like title loans, though, these loans come with triple-digit interest rates and are commonly "rolled over" for a longer repayment period. Also like title loans, payday loans can result in triple or quadruple the repayment amount once interest is tallied for the entire period and fees are added.

Think you have no better options? Think again.

Financial experts agree that payday and car title loans should never be entered into lightly. Unless they are paid off immediately, they almost always result in a substantial amount of interest that quickly becomes more than the initial loan amount. Many people gravitate towards this kind of short-term loans because their credit is bad or they don't have family or friends who could lend them the money.

There is another option, though. If you are truly mired in debt, consider filing for Chapter 7 or Chapter 13 bankruptcy protection. Doing so will stop creditor harassment, prevent lawsuits from being filed against you and might even save your vehicle and home. A bankruptcy attorney can give you more information about bankruptcy and debt management options that are right for you.

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