Clark Howard's Tips

May 23, 2008

The Federal Reserve sets the interest rates it controls at 2%. Prime rate for good borrowers is around 5%. Contrast that with the stories of desperate people who take out loans on the web with interest rates as high as 2,000%. Clark doesn't know anyone who gets up in the morning and actually wants to get ripped off with a loan at 2,000%!

The penny-pinching guru recalls the original Rocky movie, where the famed title character worked for the mob beating up people who couldn't pay their loans. But even the mob in that era didn't charge 2,000%. Yet today, with a click of the mouse, you can borrow yourself into oblivion.

According to a report in The Chicago Tribune, one surprising category of borrowers tends to fall prey to these outrageous online loans. That's people who earn about $35-65K/year. These folks will usually look for loans if they're short on money for the bills.

Clark believes online predatory lenders are sociopaths. They know the difference between right and wrong, yet they don't care about the harm they're causing to families. So put this in the back of your mind if you ever reach that point of desperation. Business Week, meanwhile, reports that business owners are getting loans with interest rates of more than 50%. While that may not sound excessive by comparison, it's extremely high for business owners.

Retail and restaurants are often targeted for these kinds of loans. The modus operandi of the lenders is that they make an advance against future credit card receivables, which are then redirected to be deposited to them, not to the business owner. It's like mortgaging your future.

Remember Doug Flutie's famous 1984 Hail Mary pass? Well, these business loans are kind of like that. But even though that pass connected, it's not the kind of chance you want to take with the future of your business.

Consumer advice courtesy of