As covid and a tough economy run their course in today’s world, many cash-strapped Tennesseans who need to borrow money have turned to payday loans and or cash advance loans in tough times.
Unfortunately, Tennessee law makers caved to the payday lending lobby and as a result there is a new product called a flex loan.
“The payday lending lobby contributed hundreds of thousands of dollars to Tennessee lawmakers as the industry pushed for a new type of loan in the state, NewsChannel 5 Investigates discovered. The Flexible Credit Act created flex loans and legalized their 279% annual percentage rate. It sailed through the General Assembly in 2014, passing unanimously in the state Senate and with bipartisan support in the House. But our investigation discovered that few lawmakers questioned the new product or the high interest rate.” [Nashville News Channel 5: “Lawmakers Took Payday Lenders’ Money, Asked Few Questions,” 2/17/16]
The Flex loan is an open-ended credit line with an interest rate that can be as high as 279% APR or annual percentage rate. I’ve actually seen this staggering rate first hand and helped someone get out from under its crushing weight.
If you live in Tennessee, then guess what. You are in luck. Tennessee is one of the first states where you can be forced into bankruptcy with one of these unsecured personal loans, which are nearly impossible to pay-back. Like payday loans, only worse, these loans also have high interest rates that will destroy your bank account and are nearly impossible to repay.
And of course, while those in the industry say flex loans are better than traditional payday loans, anyone who knows anything about money knows nothing good can come out of a loan with such unethical rates. Everyone we talked to says you’ve got to be careful because flex loans are nearly impossible to pay off.
When you need money, a payday flex loan may seem like a good idea, but they are a trap designed to entrap and bankrupt you. The loan application process is easy, and because there is such a high-interest rate, they are more than eager to help you through the process and often promise to get you the money fast.
For most folks, it is the wrong answer. I actually can’t think of a time when it’s the right answer.
Most people who take out a loan like this are not financially savvy enough to understand a loan’s terms and conditions. Sadly, this type of loan is targeted at people who have poor credit or bad credit, are not educated, and don’t know how to calculate the ramifications of a loan at 279% interest.
Let’s say you take a loan amount of $2,000.00 at 279%. What is 279% of $2,000.00
it is 2,000.00 x 2.79 = $5,580.00
So over a year, you would pay 5,580.00 to borrow 2,000.00. This is insane and should not be legal.
This is why most people who take out these loans can’t catch up and get behind.
Traditional payday loans had a cap at $500.
But flex loans, which are open lines of credit and are similar to payday loans, will allow consumers to borrow more money than a payday loan would have allowed. This type of lender seeks out the uneducated borrower with bad credit scores and offers them a high-interest loan. Sometimes they seek out and loan to people with no credit and no experience with borrowing money. If approved, they get a line-of-credit where the annual percentage rate can be anywhere from 100% to 279%. Unethical Payday lenders get rich off these loans, and their customers can lose everything trying to pay it back.
While the interest rate has a cap at 24%, the elusive daily fees that lenders can charge can, under Tennessee law, bring the total APR (Annual Percent Rate) to 279%. They often directly debit all their fees from your checking account or credit union. Once they lend you money, you may be trapped.
Diane Standaert from the Center for Responsible Lending says, “A 279% annual rate is excessive.” Her consumer advocacy group actively fights against what she calls “abusive financial practices,” and they have been battling unethical flex loans.”The bottom line is that flex loans are just another name for a payday loan — and a payday loan is just a debt trap,” Standaert insisted.
She said she is afraid of the terms and costs of these new loans.”They’re designed to generate fees for the payday lenders while leaving uneducated borrowers much worse off,” Standaert says. Late last year, the Center released a scathing report describing flex loans as “excessively priced” and “laden with fees.”
If you’ve made a mistake and taken out one of these payday loans, what can you do to get out of it?
- Panic (in a healthy way) know that this is an emergency and must be dealt with. You must take action now, or this will destroy your bank account and credit rating.
- Go to a real bank (a nationally recognized brand) and sit down with a banker to apply for a loan and discuss your options to take out a loan at a better interest rate. If you have good credit, you may be in luck. Anything under 20% is a good start, but let’s be real, any national chain will be a step in the right direction. Once you have the cash, pay off the payday lender and never step foot in one again. Make sure you take the time to understand the repayment terms. Make sure you know what monthly payment is. What the annual percentage is. Ensure that you know your monthly payment and how long it will take to pay them back.
- If 2 is not an option, call your family/friends and see if you can borrow money from them. And repay your family back quickly. See if someone will be willing to cosign for you. If your friends are afraid to loan the money to you, offer them some collateral.
- Call into Dave Ramsey‘s radio show and get his advice on how to beat this situation.
How do you avoid this money trap?
I’d recommend having an emergency fund set aside in a savings account that can be easily accessed. Dave Ramsey recommends starting with $1,000.00. I agree with Dave and would recommend starting with $1,000.00 and then getting to $2,000.00 as quickly as possible. As long as you have this emergency fund set aside, you will probably not need the services predatory services that payday loans have to offer when an emergency happens, and you find that you need some money. Build this emergency fund so that you don’t have to live paycheck to paycheck always pay off your credit cards. Don’t let any bills go unpaid. Have a budget.
Also, monitor your creditworthiness and your credit score or fico score. Make sure you do a free credit check at least once a year to make sure you don’t have any unknown issues.
Stay away from any bank with signs that read fast cash, speedy cash, consolidation, cash advances, bad credit loan, title loans, etc. All of these will have higher interest rates and will drain your bank account.
If you have bad credit, make sure you start rebuilding your credit. Do everything you can to improve your credit score so that if you need to borrow money that the right banks will want to help you out. Once you have a good credit history, stay on top of your monthly payments.
Good credit scores usually mean you can borrow money at lower interest rates.
Make sure you pay your credit cards on time and keep your balances low. But let’s be clear borrowing money is rarely a good idea and saving money is rarely a bad idea so make let’s get your emergency savings in place so that you are never borrowing money from anyone. The goal of this site is to guide you to financial freedom. You cant be in debt and have financial freedom