Two weeks ago we wrote about the dangers of high-interest loans. ESPN ran a story on the same topic, but from a different angle. The ESPN article focused on current and former professional football players who invested in companies that provided high-interest loans to borrowers with low incomes and poor credit. It turned out to be a terrible investment for these athletes, as the companies defaulted on their payment obligations to the investors, sought bankruptcy, and are the subject of investigations and civil lawsuits.
Before I present this as a cautionary tale for borrowers who need money fast, there is also an important lesson that we can learn from the athletes as well. Athletes and celebrities get paid millions for their work and you would think they’re all wealthy and living great lives. That’s probably true for some but with wealth comes the challenge of falling prey to bad investments. That large payday will make you more likely to take greater risks with your money. Athletes and celebrities are often the target of scams promising great business opportunities that ultimately fizzle at a significant cost to the investors. Earlier this year a famous hockey player filed for bankruptcy despite earning over $50 million while playing in the NHL. He also owed approximately $27 million and his bankruptcy case is still ongoing.
The businesses in which the famous athletes in the ESPN story invested were ones that provided title loans. Title loans are short-term loans at an extremely high interest rate, where the borrower puts his car up as collateral for the loan. If the borrower defaults, he risks losing his car. The article cited a borrower who put her eleven-year-old vehicle up as collateral for a loan in the amount of $1,039.99. With fees and interest she would have to pay back $3,466.63. She had to pay $3,466.63 over seventeen months just so she could borrow $1,039.99.
I’m going to assume that the borrowers here tried other options first to secure funds and were unable to do so. These companies prey on desperation. They attract borrowers who need money fast and may not fully understand the terms of the loans or are blinded by the need for immediate funds to make other payments. Borrowing like this is not rational, rather it is the product of desperation. The victims are those with little or no income, poor credit, and cannot obtain credit elsewhere. These borrowers are essentially out of options. Why else would you pay $3,466.63 for the right to borrow $1,039.99? It was not a rational decision, but she was likely too desperate to think clearly.
The most important takeaway from this article applies to both the investors in these failed ventures and the borrowers of these high-interest loans. Align yourself with trustworthy and knowledgeable people to guide you and steer you clear of obstacles. Whether you are swimming in cash or find yourself short on cash, it is important to stop for a moment and make sure you are making rational decisions.
Matthew D. Zimmelman, Esq. has been guiding individuals and small businesses in New York for over ten years to help them eliminate debt. Bankruptcy is one option, but other options are also available and Zimmelman Law can help guide you and steer you to a path free of troublesome debt and rational financial decisions.
Zimmelman Law PLLC
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