Super High-interest Loans Are Booming in California, But Why?

It’s no secret that interest rates have been through the roof. The most absurd loan I’ve heard of thus far is one for $5,000 — but with interest, a total of $42,000.

What!? Can they do this.

Yep —they sure can. Is it right? Of course not.

Joann Hesson struggled to make end’s meet with a laundry list of hospital bills. Desperate for help financing, a $5,125 loan was scheduled to be repaid over more than seven years, with $495 due monthly, for a total of $42,099.85 . Yes, that’s nearly $37,000 in interest.

According to LA Times, unlike payday loans, which can carry even higher annual percentage rates but are capped in California at $300 and are designed to be paid off in a matter of weeks, installment loans are typically for several thousand dollars and structured to be repaid over a year or more. The end result is a loan that can cost many times the amount borrowed.

The cause? State lawmakers in 1985 removed an interest-rate cap on loans between $2,500 and $5,000. Today, more than half of all loans in that range have triple-digit interest rates. Scary stuff.

Consumer advocate Margot Saunders, an attorney with the National Consumer Law Center expressed her concern —

“Access to credit of this kind is like giving starving people poisoned food. It doesn’t really help, and it has devastating consequences”.

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