St. Louis Dispatch
Danielle Fagre Arlowe, Oct. 14, 2015
The editorial “Irresponsible, poor, whatever” (Sept. 23) listed installment loans alongside payday and title loans and implied that these types of credit are the same. In fact, installment loans are fundamentally different from payday and title loans and are seen by many as a safer and more affordable source of credit.
These differences are to do with the way loans are structured. Payday and title lenders do not properly test the borrower’s ability to repay the loan, and require loans to be repaid in one lump sum, within 30 days. It is this balloon payment that can cause a cycle of debt, in which borrowers are forced to constantly renew loans they cannot pay back when the time comes.
Traditional installment loans, such as those made by member companies of the American Financial Services Association, are structured with built-in consumer protections and safeguards against default. A borrower’s ability to repay a loan is worked out in advance, and regular, equal-sized payments are scheduled, giving the borrower a clear pathway out of debt. Also, unlike payday lenders, installment lenders report loan performance to credit bureaus, giving borrowers the chance to build credit.
These differences are important. They point to a clear alternative to payday lending in Missouri.