When Rakesha Hill’s car broke down, she didn’t have $ 700 to pay a mechanic. Mother Mesa of three earns a modest salary working for a charity that helps homeless families.
So, in a pinch, Hill took out an auto title loan.
“It was the only option I had at the time,” she said.
Hill, 39, has found out what many consumers are doing. The interest rate was so high that she was having trouble repaying the loan.
“I already had a year to pay ‘$ 100 a month,’ Hill said, ‘and nothing went into the principal.’
Securities lending is a popular option
Consumers often turn to vehicle title loans when an unforeseen emergency arises and they are short of cash.
Four in 10 Americans said they would struggle to cover a surprise $ 400 expense, according to a Federal Reserve study last year. A Bankrate.com survey it is estimated that about two in ten adults have no emergency savings at all.
But interest rates on securities lending can be huge, totaling up to 204% per annum, according to the Consumer Federation of America and the Southwest Center for Economic Integrity.
People can shell out two to three times the amount they borrowed without coming close to loan satisfaction. And if a borrower defaults, the lender can repossess the vehicle and charge additional fees.
The program helps borrowers
Hill felt stuck with her title loan.
“It’s like a cycle. You pay them just enough to keep them from harassing you, ”she says.
Then Hill heard of a program that might help.
The program, called Lend a Hand, allows qualified residents of Maricopa County to borrow up to $ 4,000 from the MariSol Federal Credit Union to repay a title loan.
The annual interest rate on the new loan, at 15%, is much lower than that of most securities loans. Participants can also get debt counseling from a Phoenix-based nonprofit, Take Charge America, and set up a savings plan so they can get back on track.
The Arizona Community Foundation and the Phoenix Industrial Development Authority are supporting the program.
Hill said Lend a Hand made it easy for him to get rid of his debts.
“(The loan) was so affordable I was able to pay it off in six months,” Hill said. “Without the program, I would still pay (the title loan) now or have my car repossessed.”
Some are not satisfied with the program
Lend a Hand is not for everyone.
People with multiple securities loans or who are heavily in debt are unlikely to be approved for the loan, said Robin Romano, CEO of MariSol Federal Credit Union.
“It’s a great tool for those who are in the early stages of being trapped,” she said. “The vast majority of people we have to turn down … they owe so much more than they can repay, it’s like putting a bandage on a gushing wound.”
But Romano urged everyone to apply.
“Take the first step and apply. It doesn’t hurt to go through the board, and it doesn’t hurt to take a look at it, ”she said.
A participant said The Republic of Arizona he was not satisfied with the program.
An 80-year-old Phoenix charter school teacher took out a car title loan to pay for his wife’s breast cancer treatments.
After applying for the Lend a Hand program, he said he felt compelled to accept the Take Charge America debt plan even though it was not approved for the MariSol Federal Credit Union loan.
The organizations said they would review their application materials and interactions with consumers to improve communication on the two separate programs.
How the program works
People who applyLend a Hand will first speak to a Take Charge America credit counselor.
The Phoenix nonprofit can create a monthly budget based on the applicant’s debts and negotiate with creditors to lower interest rates and monthly payments, waive late fees, shorten the repayment date, and stop payments. collection calls. Take Charge America then takes a small fee from the monthly payments.
Consumers are not required to accept Take Charge America’s debt management plan to receive the MariSol Federal Credit Union loan.
Within days of submitting the Lend a Hand app, consumers should also hear from MariSol Federal Credit Union. The credit union may request more information to complete its loan review. Subsequently, he will inform the applicant if the loan has been approved.
If the loan is approved, the borrower should open an account with MariSol Federal Credit Union, start making payments on the new loan, and save a small amount each month.
‘Get out of the vicious circle’
The Lend a Hand program aims to get participants out of the trap of an existing title loan, as well as help them avoid looking for one in the future, according to program advocates.
“Sometimes people think their only option is to go to Tio Rico or TitleMax,” Romano said. “Anytime we can help people see another way of doing something is a good thing.”
When Hill faced another financial emergency recently, she did not go to a title lender. Instead, she asked MariSol Federal Credit Union for comfort.
Hill had given birth to a baby boy and had taken unpaid maternity leave.
She has continued to do credit union banking transactions since completing the Lend a Hand program. The credit union approved a loan at a lower rate than a title loan.
“MariSol is like family,” Hill said. If consumers are “looking for a place where they can save money and get out of the vicious cycle of title lending, I would recommend the program.”
How it works
If you have a car title loan, you may be eligible to repay it by borrowing up to $ 4,000 at an annual interest rate of 15% from MariSol Federal Credit Union under the Lend a Hand program.
2. Contact Take Charge America to schedule a free credit counseling session. A credit counselor will offer to help you budget and create an action plan to eliminate debt and save for the future.
- By phone: 1-877-822-2410.
- In person: 8 a.m. to 5 p.m. Monday to Friday at 20620 N. 19th Ave., Phoenix.
3. Submit your request and additional documentation to Take Charge America for review.
4. MariSol Federal Credit Union will review your request for loan eligibility.
- If you are approved, the credit union will repay your title loan and work with you to set the monthly payments on the credit union loan. You will also be required to open a MariSol Federal Credit Union savings account with an initial deposit of $ 25 plus $ 10 per month to build an emergency fund.
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Mainstream reporter Rebekah L. Sanders investigates fraud and abuse issues involving businesses, healthcare organizations, and government agencies. Contact her at [email protected]. Follow her on Twitter at @RebekahLSanders.