Submitted by Cold_Chemical5151 t3_zycfxg in explainlikeimfive
Tr4c3gaming t1_j250r9o wrote
A loan shark gives desperate people that need cash big loans at absurd interest rates.
Long story short it is a trap... you already are left without money, a loan shark preys on that by fixing your debt issue short term.. then kicks you deeper in debt due to absurd interest rates... so to get rid of the loan sharks loan..who will press and harass you to pay it off.. many opt to lend money from other.. possibly loan sharks too. Or friends.
It is a spiral of debt.
vahntitrio t1_j254v5h wrote
It also doesn't need to be a loan shark to get into a debt spiral. Things like buying a new car on the 7 year loan with very little money down can make your $40k vehicle cost closer to $52k, whereas taking a 4 year loan and putting more down puts the cost closer to $42k.
maveric_gamer t1_j25w8p1 wrote
That's bad, but it's not really a spiral if you do things like keep a job and make sure that your monthly payments for everything are lower than your income each month. The problem with a lot of these loans is that they're structured to almost never pay off the principle of the loan, and the interest keeps compounding.
The really bad legal examples IMO are student loans - they're huge loans that even if you get your degree you're not likely to be able to afford a payment that would pay them off in a reasonable time, and so that's why you end up with stories like "I borrowed $30,000 to go to college, and after 10 years of $500/month payments, I now only owe $47,000" (I'm making up numbers for the quote but real examples exist for this)
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