The high costs of a quick loan when facing financial challenges

When a Mississippi resident is in a financial jam, there may be only a few solutions to a high-cost lender. However, in certain situations, an installment lender may be the only one willing to risk making a loan. These loans often come at a cost, though -- higher than the borrower may realize. And as these high costs pile up, personal bankruptcy may be the only solution to reach real financial recovery.

A recent analysis by ProPublica revealed some startling statistics about installment lenders, like Tower Loan, in Mississippi. While it may seem like there are protective legal measures in place, including bans on triple-digit interest rates, these lenders still find ways to increase the costs of their loans.

One major avenue by which these lenders prey on individuals struggling with financial challenges is by pursuing litigation to collect debts. Court records reveal that Tower Loan filed over 3,000 lawsuits since 2009 in Hinds County alone. By filing a lawsuit, the lender can pursue a judgment against the borrower and attempt to collect up to 30 percent interest on such a judgment. In addition to tacking on such interest, the lender may also seek attorney fees under the law. All of these costs add up for the borrower and equate to more debt.

Sometimes the only way to avoid or manage this accumulating debt is to file for personal bankruptcy. Bankruptcy law is specifically aimed at providing relief and helping borrowers to face harassing creditors. In most situations, filing for bankruptcy stays a creditor's pursuit of a debt. And when the bankruptcy proceeding is finalized, the debt may actually be discharged.

Recognizing the pitfalls of installment lenders before borrowing from such companies is a helpful strategy to avoid increasing debt. Of course, this is not always possible when an unexpected cost comes up. Fortunately, personal bankruptcy provides a back-end solution.

Source: propublica.org, "When Lenders Sue, Quick Cash Can Turn Into a Lifetime of Debt," Paul Kiel, Dec. 13, 2013

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