Case study #7: poor credit low income loans
This case study about poor credit low income loans will show you some of the dangers that these types of loans can bring. This is a real life story that was contributed by my close friend and it involves one of his relatives. For this case study, we will refer to my friend's relative as John. This case study will perfectly show you how and why those loan companies created the poor credit low income loans. John worked as a construction worker and was living alone in a small rented apartment.
Because of John's low wage as well as the fact that he didn't have proper working wage's slips, because he would sometimes jump from one company to the next depending on whether or not they had any projects, none of the banks would approve any of his loans. He was trying to get a loan for buying a new motorcycle for himself to make it easier for him to commute from his apartment to his working area.
John didn't want to stay at the construction quarters for hygienical and safety reasons. But because some of the sites are not accessible by public transport, John decided that he needed a motorcycle which could help make his life a whole lot easier. Due to his pride and attitude, John would never ask and even accept any help from his relatives as he had been independent on his own the whole time. But due to the fact that he would not accept any help from his relatives and the banks would not approve his loans, John was facing a problem of finding the money needed to buy a motorcycle.
It was then that John was introduced to a loan company. Many of his friends at the constructions site had borrowed from loan companies before. Although most of them shared their bad experience with those loan companies to John, John realized that most of them could not afford to pay the loan because of their lifestyle and attitude. John seriously considered applying for one of those poor credit low income loans to get his motorcycle. John had very good discipline and money management skills, which gave him the confidence to apply for the poor credit low income loans from them. And the fact that he doesn't gamble or drink gave him even more confidence.
John then went to one of the nearest loan companies to apply for one of those poor credit low income loans. John took out a loan for $1000 with an interest rate of 15% with the payment period being ten months. That meant that John would have to pay them $250 every month for ten months. Although his wage was quite low, John was still able to save up enough money by the end of the month to make his payment. Everything was working out fine for John, and he continued to pay his monthly payments for four months without any problems. In fact, it was going so well for John that he still managed to save up $300. He kept that in case of emergencies where he was not able to make enough money to pay for the monthly payments for his poor credit low income loans.
But it was during the fifth month that tragedy struck. One day on his way back from work on one stormy evening, John got into an accident. He slid his bike and ram right into a large divider. His bike was slightly damages, but John was seriously injured. He broke his wrist and foot in that accident. And the hospital told him that he would need to stay in the hospital for at least three months and depending on his injuries, it could take even longer. Because of his injury, John could not work or even go to the loan company to make the payments for his poor credit low income loans.
After three grueling months, John was able to get out of the hospital. He went to the loan company to discuss his payment. He brought along his $300 to pay them, but he was later in for the shock of his life. It would seems that the loan company didn't care if John was hospitalized, as they considered that he had failed to make up to three months of payments. Because of this, they purposely increased the total debt and the interest rates. The loan company had increased the interest rate by 5% for every month, and added up the money that he was not able to pay into the total debt.
That meant that the $250 was added up to his initial balance. Deducting four months payment which he had made, he still owed to loan company $1500. But now it was $1750 and the interest rate up to 20%. Which meant that he had to pay $525 every month for another ten months for his second month in the hospital. But because he was in there for three months, they increased it another time, which meant that the $525 was added up to his total of $1750 to make it $2275 and the interest rate further increased to 25%. That meant that now John had to pay them $796.25 for every month and for ten months long. That would meant that he had to pay them a total of $7962.50 for the $1000 poor credit low income loans that he had taken.
The loan company would not listen to any of John's reasons. Because of his injuries, John would not be able to continue working at the construction site anymore. That meant that John now had no means of income to pay of his debt. John realized the dangerous situation he was in. Knowing he would only get into deeper trouble if he failed to make another payment, John went to one of his relatives for help. That was my friends parents. John explained his situation and he was very lucky that my friend's parents helped him out by settling all the debt.
John is still considered very lucky, because in many cases, many people do not have anyone to help them. John was a smart person who saved up and paid his monthly payments without any problems. But the problem is that sometimes unknown situations might occur that will make it difficult for some people to make the payments, and in John's case, it was impossible. And when situation like that happens, the loan will only get larger and make it that much more difficult for people to settle safely. This case study shows the real danger that those poor credit low income loans have that most people are not even aware of.
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