Filed under: Personal finance, Housing
A CNNMoney piece looks at the rise of payday lending in Ohio, aided (or perhaps exacerbated is a better word) by the subprime debacle that has given many home owners with toxic mortgages difficulty making their payments.
While people probably aren’t using payday loans directly to pay their mortgages, that’s the net result: Soaring monthly payments are eating up a huge chunk of their paychecks, and they’re resorting to payday lending to pay for other expenses.
The problem with that is that, on an annualized basis, interest rates on payday loans can end up being well over 400%. However the lenders counter, not wrongly, that the loans are not meant to be used for a year so quoting an APR is meaningless — They charge a service fee for a short-term cash advance.
But subprime homeowners who find themselves resorting to payday loans to keep their homes are probably making a massive mistake: If you can’t afford the monthly payments on your home, you should probably give it up. And if, like many subprime borrowers, you have only a little chunk of equity, and in some cases no equity, it isn’t really your home.
Taking out high-interest toxic loans to try to stay current on a high-interest toxic mortgage is probably not intelligent in most cases. Foreclosure is probably down the road for these homeowners, and adding additional debt to postpone it only makes things worse.
Here’s something I haven’t heard anyone in Washington, which has engineered a bailout of homeowners with terrible credit scores and less than 3% equity in their homes, say: People who have no equity aren’t homeowners, and it’s probably best to just let them lose their houses, since they aren’t even theirs.
Pic from Flickr:
http://www.flickr.com/photos/ellievanhoutte/993553482/
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