I got schooled today in the high cost of being poor. I went to a pawnshop. I wrote about the high cost of credit card debt, and how it destroys any prospect of creating wealth. Now I want to just say a few cautionary words about other lending schemes that are even worse.
I have been writing about saving money as the first step in investing, creating wealth, and financial independence. Before you can start to save, you have to get out of high cost debt.
There are predatory forces out there that want to separate you from your hard earned money. High interest lending is a slippery slope. Don’t get caught in its vortex. The costs are astronomical.
Money often costs too much.
Ralph Waldo Emerson
I had never been in a pawnshop until today. I have known about them from seedy depression era tales, film noir, and anecdotes about drug addicted jazz musicians. This place actually looked nice and safe. It had a third tier Vegas casino vibe.
The money lending practice shocked me. My friend had pawned a computer and received $80. He had to pay interest of $17.50 for 120 days. That loan could be rolled over for another 120 days for another $17.50. If he didn’t come back in 120 days, they could then sell the computer for probably $400 or so. They were covered for collateral on their loan.
So lets take a look at the APR, annual percentage rate, of the interest payment. 120 days is one third of a year, so the annual rate is 3 x $17.50 = $52.50. The interest rate is 52.5/80 = 66%
That is more than three times higher than credit cards.
Usury is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. These practices target the poor, desperate and vulnerable. Just the people who can’t afford to toss away money.
If you want to build wealth, also avoid title loans and payday loans. This money costs way too much. Get out from under any of this debt ASAP.