The Rut of Paying Short-Term Loans

By Matthew Alvarez

Bills do not wait for anyone, and Austin resident Pearl Garza is no exception. When the deadline for her monthly payments approached, Garza was left with no choice but to take out a short-term loan.

So, she went to her neighborhood Cash Store in East Austin in December. In less than 30 minutes Garza emerged with the money she needed, and an uncertainty about the rut she may have fallen into. About two months into her scheduled payment Garza felt as if she had been misinformed.

“I didn’t know the interest would be so high,” Garza said.

“There are things that are hidden in there that they don’t tell you about until the effects are processed out.”
– Pearl Garza

Garza did not specify her line of work, nor did she detail what the cash advance was exactly for. However, she said it was the holidays, and she had come to a fork in the road where she decided to bite the bullet because she just needed the money.

Garza’s annual percentage rate, or anyone else who takes out a loan at the Cash Store, is 581.72 APR. Add a $22 fee for every $100 taken out and debt can pile on quickly. The payment due date is every 14 days, and it can be linked for automatic withdraw from a checking account. It’s designed so the individual who takes out a loan can repay it in full, interest rate and all, in just 12 payments.

When Garza took out the loan she felt it was rather easy and too good to be true. The requirements are typical, only asking for a driver’s license, a recent bank statement, pay stub and a personal check. Yet, with easy-to-read pamphlets and a contract that is fully explained, Garza felt the Cash Store was vague when providing full disclosure of her loan.

“There’s a lot of stuff that they don’t tell you, and they don’t explain to you,” Garza said. “So I stand there and have them explain to me why my receipts don’t match the contract I signed.”

The confusion was with her locked interest rate. It didn’t go up, but instead it looked as if it might not be paid off when she desired. Garza did not want to say how much she took out, but said the loan should be paid in full by late April.

Garza is not alone in feeling like she had missed an important source of information. Krystal Bustamante, manger for the Cash Store, said this misunderstanding is common with customers.

“It’s really up to the person if they want to hear us or not,” Bustamante said.

“You can tell from those who want to listen versus people who are like hurry up and give me the money. Those are the one’s who feel like it is hidden, but it really isn’t and we do explain it to everybody.”
– Krystal Bustamante

Bustamante feels this is not a big problem and sees plenty of customers paying off their loans on time or even earlier than expected. What she notices the most is repeat customers, and new ones referred by those who have already taken out a loan. That’s because every referral will earn a current customer a check for a $100 and there is no limit to number of references. Bustamante said this snowball effect has proven to be a success.

“I wouldn’t be able to say an exact number,” Bustamante said. “I know we already have had hundreds of people that do it. All because everyone wants a $100.”

The City of Austin also has a say in all this. While they cannot stop anyone from taking out a short-term loan with such high interest rates, they can place restrictions on lenders to ensure someone cannot take out more than they can pay back.

Councilman Bill Spelman was behind the aggressive push for the new ordinances in order to protect the welfare of citizens.

“Reasonable restrictions on payday lenders can have an effect on the cycle of debt that some of our citizens experience,” Spelman said.

“Austin, and a few others cities such as Dallas, San Antonio and El Paso, have taken the lead in doing what we can to protect our citizens.”
– Councilman Bill Spelman

The newest ordinance calls for overall protection for someone taking out a loan. A cash advance or title loan cannot exceed 20 percent of the consumers’ monthly income and installment plans must also be repayable within four payments. A full list of these ordinances can be found on the City of Austin website.

As to whether someone should take out a short-term loan, or an investment cash advance, as the Cash Store would call it, that is up to the consumer. Garza hopes she will not fall into the same circumstances in taking out another loan, and advises her fellow citizens to be weary.

“Is it a headache? Yeah it is,” said Garza. “I would try and find another way to get the money.”