Borrow $5,000, repay $42,000 — How super high-interest loans have boomed in California
LOS ANGELES - JoAnn Hesson, sick with diabetes for years, was desperate.
After medical bills for a leg amputation and kidney transplant wiped out most of her retirement nest egg, she found that her Social Security and small pension weren't enough to make ends meet.
As the Marine Corps veteran waited for approval for a special pension from the Department of Veterans Affairs, she racked up debt with a series of increasingly pricey online loans.
In May 2015, the Rancho Santa Margarita resident borrowed $5,125 from Anaheim lender LoanMe at the eye-popping annual interest rate of 116 percent. The following month, she borrowed $2,501 from Ohio firm Cash Central at an even higher APR: 183 percent.
"I don't consider myself a dumb person," said Hesson, 68. "I knew the rates were high, but I did it out of desperation."
Not long ago, personal loans of this size with sky-high interest rates were nearly unheard of in California. But over the last decade, they've exploded in popularity as struggling households - typically with poor credit scores - have found a new source of quick cash from an emerging class of online lenders.
Unlike payday loans, which can carry even higher annual percentage rates but are capped in California at $300 and are designed to be paid off in a matter of weeks, installment loans are typically for several thousand dollars and structured to be repaid over a year or more. The end result is a loan that can cost many times the amount borrowed.
Hesson's $5,125 loan was scheduled to be repaid over more than seven years, with $495 due monthly, for a total of $42,099.85 - that's nearly $37,000 in interest.
"Access to credit of this kind is like giving starving people poisoned food," said consumer advocate Margot Saunders, an attorney with the National Consumer Law Center. "It doesn't really help, and it has devastating consequences."
These pricey loans are perfectly legal in California and a
