Payday loans were once a popular option for individuals in Virginia looking to bridge the financial gap between a difficult financial situation and their next paycheck. On its face, the intent behind these loans seemed fair. After all, businesses providing these loans claimed that they were short-term in nature and were meant to address challenging financial situations such as unexpected car repairs or medical expenses. The problem, of course, is that many people who turn to these loans end up facing triple-digit interest rates, and many of these borrowers find themselves in a revolving door where they constantly need to take out these high-interest loans.
Now that a light has been shone on the issues with payday loans, some are looking for new business opportunities to help people in financial need. One of those businesses in mobile app Earnin. The program allows individuals to borrow up to $1,000 against money they have already earned. Then, when their paycheck is deposited into their account, Earnin withdraws the borrowed amount with no interest. But there is a catch that may wind up leaving consumers facing even more challenging financial circumstances.
Although Earnin doesn’t charge interest on money that is borrowed, it does encourage users to “tip” 10% per transaction. To many, this doesn’t sound bad. After all, a 10% tip on a $100 loan is only $10 dollars. Yet, when the numbers are crunched the truth sets in. Considering the short period of time that these loans survive, many borrowers who tip end up paying more in interest than they would with a payday loan. For example, a $5 tip paid on a $100 loan over the course of four days is equivalent to an annual percentage rate of 456%.
Earnin claims that consumers don’t have to tip, which is true. However, individuals who turn to this app may only see themselves stuck in that revolving door of loans and repayments, potentially losing out due to their own generosity when they decide to tip. This is why those who are struggling with ongoing debt should consider more realistic debt relief options like Chapter 7 bankruptcy. A successful bankruptcy filing can eliminate many debts and set an individual on course to obtain a fresh financial start; something that these lenders cannot do.