The Trap that is the Small Loan Company

I managed a small finance company for several years and I grew to detest it. Not the least of it was having to call people who were behind on their payments and harrassing them, or threatening to repossess their collateral--something in reality that a loan company cannot legally do. It was the actual process that makes the loan company richer and the borrower poorer that finally put an end to my career as a finance company manager.

A small loan company depends on the desperation of their customers. That is how they stay in business. Here is how it works. (This is a hypothetical situation) Say you borrow $100 from the ABC Finance Company. Your payments are $25.00 a month for 6 months. Now the smart thing to do--next to never borrowing from a finance company in the first place--would be to make the payments each month at the astronomically high interest rate. But the catch is, once you've made your second payment, with good cheer and all is well, the clerk at the loan company will tell you that you can get back $25 by renewing your loan. It sounds really good because the baby needs diapers and you were already sweating bullets to make that payment you just gave up, so there is your money back! And that is where the cycle begins. Once you renew your loan, you start all over again, as if you had just borrowed the original $100.