Online lenders target the middle class

SOUTH FLORIDA — With stagnant wages and a significant rise in the cost of living, America’s declining middle class is often forced to close the credit gap — a cycle that can quickly spin out of control.

Since 2008, the middle class has seen very little, if any, wage increase. A CNW survey found that the average annual wage increase for middle-class Caribbean Americans in South Florida has increased an average of 2% over the past two years, ranging from 3.5% to 1 .5%.

Meanwhile, the cost of living has soared, supported, according to Bloomberg, by 26% higher housing costs for those who rent; 33% increase in medical care and a whopping 47% in college education.

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The overall result is that only 13% of those surveyed had any disposable income remaining after paying their monthly debt, and a worrying 29% were in a hole with insufficient funds to support buying groceries and paying bills. monthly utility bills.
With personal loans from commercial banks being hard to come by, most are turning to a relatively new type of lender, online installment lenders, to make ends meet.

Audley, a Caribbean-American, who lives in Tamarac and earns $49,000 a year, bought his house two years ago but struggled each month to pay the bills. With a credit score of 705, he was offered and applied for a $10,000 online loan. Within 24 hours, he was approved for $7,330, obliging him to repay $274 per month over 36 months.

“It was such a relief to get the loan,” Audley said. For the first few months, I made the payments easily, but eventually I was in trouble again and in a worse situation, especially since the repayments are obligatorily taken monthly from my bank account. I am now thinking of filing for bankruptcy.

While low-income Americans tend to turn to traditional payday lenders for up to $500 repayable the next payday, these online lenders lure borrowers with email loans ranging from $1,000 at $10,000. The loans are repayable over much longer periods, usually between 12 and 36 months, but at astronomical interest rates. CNW found that some people on these loans were making repayments with compound interest rates of up to 36% per year.

When people are strapped for cash, with mounting debt and sleepless nights, it’s understandable that they can be easily swayed by an email offer from one of the many companies like Plain Green Loans and National Debt Relief, which offer large loans, a longer repayment period, and a quick and easy online application and approval process.

The basic criteria for obtaining these loans are a social security number, employment verification, a fair to good credit rating and a valid bank account. Another attractive element is that most of these loans are offered for debt consolidation, the same solution that many middle-class families seek.

Although these loans are relatively easy to obtain, people should be careful when borrowing them. Although loans can help initially, repayment can increase a borrower’s debt load and could put them on the road to possible bankruptcy.
In the first 12 months of these online loans, about 85% of the repayment is allocated to interest, so to repay the loan earlier than expected, borrowers find that the principal balance is almost as high as the total amount borrowed.
And, as the demand for credit from the middle class increases, lenders are flocking to the online installment loan market.

“Installment loans are a cash cow for creditors, but a devastating cost to borrowers,” said Margot Saunders, senior attorney at the National Consumer Law Center, a nonprofit advocacy group.

But as CNW realized, with so many middle-class residents struggling with rising costs and stagnating wages, credit is a lifeline and a burden they’re willing to bear.

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