Mom trapped in ‘debt black hole’ after borrowing 365 percent interest rate

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Mother who found herself trapped in a “debt black hole” after taking out a 365 percent interest rate loan, says she was drawn to online ads promising money on his account during the day.

The woman’s story is “tragically too common,” according to a charity helping her regain control of her finances.

He calls for tighter restrictions on finance companies.

Claudia * had hoped to use the $ 450 she borrowed from a payday loan company to pay off other debts, but ended up owing $ 1,691.

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After two months, her debt had reached double what she was originally owed and continued to grow.

It was like being in a “bottomless pit,” Claudia said.

Even when she skimped on the essentials – buying reading glasses from the $ 2 store, delaying going to the dentist and living on bread for weeks – or taking extra hours from her job to take care of her. dementia patient, Claudia struggled to get her loan back.

She said that when she applied online it all seemed so easy. However, the lender did not explain the terms of the loan properly and quickly started texting and calling him daily asking for repayments.

“They take advantage of people who have nowhere to go, or they think they have nowhere to go,” Claudia said.

Taking out a high-interest loan left mother and dementia caregiver Claudia in a difficult situation. "abyss" debt (file photo).

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Taking out a high-interest loan left mother and dementia caregiver Claudia in a “bottomless pit” of debt (file photo).

Eventually, Claudia turned to the Christians Against Poverty (CAP) organization for help.

The non-profit organization offers free debt advice and practical support to people in debt or in poverty.

Since contacting CAP, Claudia has made progress in reducing her loan and can afford to buy healthy food for her children.

CAP chief executive Aimee Mai said families in poverty often take out loans at interest rates of 200 to 500 percent for necessities or emergencies, for example to prevent their electricity from being lost. cut off or to pay for drugs.

With interest being charged daily, borrowers often struggled to repay them, and debt snowballed up to sometimes seven times what they had borrowed.

The CAP called on the government to introduce more guarantees to protect vulnerable consumers, including by capping interest rates and requiring lenders to verify that they had verified that borrowers could afford the repayments before making payments. approve a loan.

“With no interest rate limit, unethical lenders have the ability to make quick profits by pushing borrowers to their repayment limits in the fastest way possible.”

* Name changed to protect privacy.

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