Predatory Loans Young Adults Should Avoid

Thousand dollar rims on a five hundred dollar car. Designer clothes, Louis Vuitton bags but no health insurance. Driving a Cadillac Escalade when you can barely make the rent each month. These are just a few examples of people in our society today trying to keep up with The Joneses.

Never before have there been such a high number of people under the age of twenty-five in debt. With credit card companies targeting high school and college kids, learning the basics of saving money is not an alternative for them.

Tune in to whichever daytime court show on any give weekday, and you are guaranteed to see a young person suing a former best friend over a cellular phone bill. These cellular phone carriers make it easy for a young person to fall into the debt trap. They offer packages so that a person can get more than one phone on their plan. So basically you have one friend with decent credit, obtaining phones for her friends. Those friends have poor credit, due to their own cell phone debt. And when it is all said and done, everyone winds up on Judge Judy.

According a November 2006 USA Today article: "Nearly half of twentysomethings have stopped paying a debt, forcing lenders to "charge off" the debt and sell it to a collection agency, or had cars repossessed or sought bankruptcy protection."

This leaves young people vulnerable for predatory lenders to swoop in with promises of "bad credit" loans. These lenders advertise on television and often spam e-mail mailboxes with offers of easy cash.

Four predatory loans for young adults to avoid are:

1. Rent-to-Own: With renting furniture or appliances you pay much more than it would have cost you to buy that furniture all at once. Missing a payment causes you to have the merchandise repossessed and you lose credit for the payments you have already made.

2. Title Loans: Simply, you sign over a your car for a loan and with a missed payment you lose your car.

3. Tax Refund Anticipation Loans: These loans include extremely high interest rates and high fees. These loans are often advertised by tax preparers as "instant" or "fast money" refunds. They must be paid back even if you do not receive a refund or the amount of the refund is smaller than anticipated.

4.Payday Loan: These short term loans are usually given in small amounts but include very high interest rates.