Predatory lenders have targeted military service members for many years, with payday loan establishments often setting up shop near military bases. The financial lives of service members can be difficult to navigate — as Americans face a tough time of unemployment, inflation and market volatility, military service members also have the added stress of deployments and relocations. This puts them at unique risk for predatory lenders who market high-interest payday loans as a short-term fix for their financial worries.
Careful budgeting can only go so far in the face of an unplanned emergency expense. At times like these, payday loans can look tempting — indeed, a 2019 Texas survey found 45% of veterans have used these payday loans to cover their finances between paychecks. The high fees and short rollover periods built into payday loans can easily spiral into a debt snowball, making the loan worse for service members than the problems they were meant to solve.
For example, a fee for a typical payday loan can be $15 on every $100 borrowed, according to the Consumer Financial Protection Bureau. These high fees stack with their short payback periods and late fees, which explains why 75% of payday loans go to those who have already taken out 11 or more loans in that same year. Loans are usually due in two weeks, and lenders often have direct access to the borrower’s checking account, all but ensuring a debt trap.
Every military service member ought to know the dangers of payday loans. Arm yourself with the facts and know your lending alternatives — then, you or your closest service member can avoid a sticky financial situation.
“Predatory lenders and payday loans often have high fees and short rollover periods that can easily spiral into a debt snowball.”
Alternatives to Payday Loans
- Get emergency help from Veterans Service Organizations.
Programs dedicated to emergency relief for service members include the VFW’s emergency grants and The American Legion’s financial assistance program.
- Call a financial representative.
Talking to an expert can get you the right solution based on your unique situation. There are on-base financial representatives you can call as well as experts at the Department of Defense who will point you in the right direction.
- Borrow from credit unions instead.
Credit unions are capped at a maximum APR of 18% — a much more favorable rate than the 36% cap offered by many payday loans. These unions are subject to stricter regulations than payday loans, which cuts down on predatory practices.
- Take advantage of financial education resources.
While you take advice from financial representatives and seek alternative loans, there are many resources you can find to boost your financial health in the meantime — like the USAA Educational Foundations Debt Destroyer videos.
“Every military service member ought to know the dangers of payday loans. Arm yourself with the facts and know your lending alternatives.”
Military service members are not alone in experiencing difficult financial times, but predatory lenders make matters worse. Avoid getting caught in one of these debt traps by using the alternatives above or connecting with an agent today to talk about your financial security and peace of mind.
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