By Hank Coleman
Posted in Auto Loans
If you have ever been to a military base or a military town, you have inevitably seen the main road leading in and out of the base. You have also likely seen nothing but miles of pawn shops, payday lenders, title loan companies, used car lots and other sharks that circle just outside of the base’s main gates, waiting on their prey to get off work and come out.
Make no mistake about it, there are many reasons why those companies exist so close to the base’s gates. Almost every base in America has them, too. However, most of these companies do not have the service members’ best interests at heart. In fact, here is a list of why you should stay away from most of these companies:
When a customer receives a payday loan, he or she writes a check for the amount of the loan and an included finance charge. The lender agrees not to cash the check until the next payday, which is typically in two weeks. Payday lenders usually provide the check writer with loans ranging anywhere from $50 to $500.
The real shock to borrowers comes from how the interest rate is charged. While on the surface it seems like you are only paying an interest rate comparable to a credit card on your loan (typically $17.50 on every $100 borrowed), people tend to forget that the loans only typically last for two weeks and must be repaid on your next payday. This means the annual interest rate for most payday loans is equivalent to a staggering 456% APR for the two week loan.
Members of the military can always find a plethora of used car lots outside of the gates of American military bases. These car lots are fine if you are in the market for a $2,000 beater car that you buy while saving up for your dream set of wheels, but those used car lots are not the place to pay for high end or even middle of the road family cars.
Many members of the military are lured there with promises of easy financing despite a poor credit history. That is true, but a high interest rate normally accompanies these small car lot financing deals. Also, many used car dealerships are small businesses that purchase their inventory of cars at local or statewide auctions. Most times, these cars have not been put through an inspection or checked for most mechanical defects.
Most members of the military would be better off purchasing a used car from a reputable dealership backed by a national automobile brand. You might pay a little more for a family car or luxury model, but you will be sure to have the backing of that dealership’s reputation. A used car lot is a great place to purchase an extremely cheap car to get a person from Point A to Point B while saving money for other financial goals, but the used car lots next to military bases are not the place where you will find a real quality automobile at a good interest rate.
Believe it or not, but I am actually a fan of pawn shops. They provide low cost loans to soldiers and civilians who are in need of a quick shot of money or want to clear out the clutter in their garage.
Licensed, regulated pawnbrokers offer consumer loans that are secured by personal goods. Pawn shops provide short-term loans to approximately thirty million Americans each year, many who cannot secure financing any other way. The real trouble comes when members of the military and others get stuck in a revolving trap of relying on pawning items to make up for shortfalls in their budget.
A person will only typically receive approximately 50 percent of an item’s value as a pawn loan. You will lose out on the other 50 percent if you do not pay back your loan and reclaim the items. Then there’s the interest rate charged for the loan. Poor budgeting and over reliance on the easy, quick money pawn shops’ loans provide is one reason that people see so many outside of military bases.
The main thoroughfare outside of American military bases, while slowly getting better and changing its perception, still provide many people a unique and interesting perspective on what is typically the lower end of the socioeconomic spectrum of American life.
Members of the military will do well to stay away from the sharks lurking near the gates of American military bases. Many do not have the best interest of military personnel in mind when offering loans and cars at high interest rates. There are better options for a soldier’s business than many of the businesses right outside the gates.
Hank Coleman is a Captain in the U.S. Army, freelance writer, and the founder of personal finance sites such as Military Money Might. His writing has been featured on The Motely Fool, Military.com, and many others. You can follow him on Twitter at @HankColeman.