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Miserably bad deals

Companies love to make money. Unfortunately, not all of them have good consciences, or you wouldn’t see ads like the following on TV: http://www.youtube.com/watch?v=JJMS5OrdAcg. Hey, it’s Gary Coleman! And he’s offering a nice service to people who need money, right? Not quite — look closely at the fine print. The loans he is pitching charge an Annual Percentage Rate (APR) of 99.25%!

What does this interest rate mean? Well, the terms state that a typical loan for $2,600 is 99.25% with 42 payments of $216.55. That comes out to more than $9,000 dollars over three and a half years. In other words, someone who takes this loan pays well over three times what he or she borrows.

Offers like this are designed to prey on consumers who don’t know better. This ad is often shown in the daytime, when the viewers are predominantly people who don’t have jobs — people who already have a hard time paying for what they have. By offering these high-interest loans, the company is essentially offering a fast track to insurmountable debt.

One other type of company springs to mind after seeing this ad — rent-to-own companies, such as Rent-A-Center. These companies rent furniture and electronics to consumers at incredibly high rates, and then offer to sell them the items at an increased price. A recent article on AllFinancialMatters did an analysis of how these stores operate and found that, for a single piece of furniture, Rent-A-Center was charging a 122% APR.

Companies “offer” deals like these because consumers take them. Many of the people who rent furniture or take high-interest loans have to take them because they don’t have any credit, and they have no other way to get money. Still, there is always a way to save your credit.

We here at Lending Club urge you to be careful of high-interest deals. Otherwise, you might find yourself in serious debt and unable to get out of it.

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