Online person-to-person lending seemed like a terrific concept. People with a bit of available cash could have the opportunity to loan their money to folks who needed it. Without the expensive branches and staffs, an online intermediary could keep its costs low. In theory, that would result in higher than bank interest returns for the folks who could lend cash and lower than bank interest costs for the people who needed to borrow it.
Mistakes, snafus, grievous errors -- we've all made them. But Mom's advice to "say sorry" only helps so much when you're talking about costly mistakes that may harm your credit. And with financial institutions on life support, you can't expect much leniency.
Chicago -- More American are going to payday loan companies to help make ends meet amid rising U.S. gas prices and the subprime mortgage crisis, experts say.
Many middle-class Americans are seeking online payday loans despite their triple-digit interest rates, the Chicago Tribune reported Sunday.
"It's insane. It is growing like wildfire," said Henry Coffey, a stock analyst based in Baltimore who tracks the payday loan industry.
He said one factor in the growth of online loans, which charge as much as 2,000 percent interest, is that they effectively hook borrowers, often forcing people to take second and third loans to cover ballooning debts.
"If you are paying over 1,800 percent interest, you will never get out of that debt," said Elizabeth Schomburg, an official with Family Credit Managing Services, a Rockford, Ill., credit counseling agency.
If you have substantial debt, you have a tough decision to make.
On one hand, you'd like to start saving and investing toward your financial goals. But with credit card interest rates well into double digits, eliminating that debt is an immediate return on your money that's hard to duplicate with savings or stocks. So what should you do?
We've all had it happen -- some small injustice occurs that costs us money.
Maybe it's a landlord who held back several hundred dollars of your security deposit for no legitimate reason. Someone you paid to do work for you didn't finish it or bungled the job. Whatever it is, you may find yourself out hundreds or even thousands of dollars -- money that you'd like to get back.
When my Foolish colleague Selena Maranjian extolled the virtues of banning payday loans for members of the military, I knew it was because she wants consumers to run their financial lives Foolishly. After all, living from paycheck to paycheck and making regular use of short-term loans is not a particularly wise use of one's financial resources.
If you're thinking of starting up your own credit card company and you'd like to sneak a bunch of unsavory terms and conditions by your customers with few people noticing or objecting, put them in tiny print in a long document that no one will want to read. That's what the big card companies seem to do.
Lending money to a friend or relative? Many folks will tell you, "Don't do it." Or at least never lend more money than you can risk losing. Unless you clearly define the terms of your loan at the outset, you may just as well have called it a gift and called it a day.
I know the basics about mortgages, just as I suspect you do: Fixed-rate mortgages offer few surprises. Adjustable-rate mortgages (ARMs) offer lower introductory rates, but eventually begin fluctuating with the interest-rate environment. Fixed-rate loans can be good if you plan on staying put for a long time; ARMs can be good if you plan to sell and move within a few years.
When you're in a bind, the last thing you want to hear is a list of reasons why you shouldn't borrow the money you need. Often, however, that's exactly what you'll hear about taking out a loan against your retirement plan at work.
Disclaimer: The views and investment tips expressed by investment experts on themoneytimes.com are their own, and not that of the website or its management. TheMoneyTimes advises users to check with certified experts before taking any investment decision.