As the Marine Corps veteran waited for approval for a special pension from the Department of Veterans Affairs, she racked up debt with a series of increasingly pricey online loans.
In May 2015, the Rancho Santa Margarita resident borrowed $5,125 from Anaheim lender LoanMe at the eye-popping annual interest rate of 116%. The following month, she borrowed $2,501 from Ohio firm Cash Central at an even higher APR: 183%.
“I don’t consider myself a dumb person,” said Hesson, 68. “I knew the rates were high, but I did it out of desperation.” Not long ago, personal loans of this size with sky-high interest rates were nearly unheard of in California. But over the last decade, they’ve exploded in popularity as struggling households – typically with poor credit scores – have found a new source of quick cash from an emerging class of online lenders.
Unlike payday loans, which can carry even higher annual percentage rates but are capped in California at $300 and are designed to be paid off in a matter of weeks, installment loans are typically for several thousand dollars and structured to be repaid over a year or more.The end result is a loan that can cost many times the amount borrowed. Hesson’s $5,125 loan was scheduled to be repaid over more than seven years, with $495 due monthly, for a total of $42,099.85 – that’s nearly $37,000 in interest.
When Hesson applied for her $5,125 loan in May 2015, she had just received the last monthly payment from a long-term disability insurance policy. Without that $1,900, she had income of about $2,900 a month from Social Security, alimony and a small pension.