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Soldiers and military veterans provide an easy target for unscrupulous lenders. Military bases provide a large number of young people who do not earn a lot of money and who generally do not have a lot of financial education and experience. This is why many businesses who specialize in short term loans, such as car title lenders and payday lenders, are located near military bases. These lending businesses put up big signs with catchy slogans to attract the attention of soldiers heading off of the base. Those these businesses can help soldiers to put some fast cash in their pockets, there are significant risks to those who do business with these short term loan providers.

Short Term Loans

Most short term lenders work in similar ways. They provide loans for a short period of time, generally 14 or 30 days. The lenders charge a very high percentage rate, many times the rate would convert into an amount in excess of 300% annually. With a payday loan, the lender accepts a postdated check for the amount of the loan plus fees and cashes it on a predetermined date. With a title loan, a lender makes a loan while holding the borrower’s automobile title as collateral. Failure to pay the loan results in the lender taking ownership of the vehicle.

Debt Cycle

Many borrowers find themselves unable to pay off their short term loans when it comes due. Rather than paying overdraft fees on their bank accounts or losing ownership of their vehicle, the borrower then takes out a new loan to pay off the old one. This cycle of continuing to have to make new loans to pay off old ones is a common short term loan trap for many borrowers regardless of whether they are civilians or members of the military. However, escaping the debt cycle is especially difficult for members of the military as they are generally not able to pick up overtime or a temporary second job to come up with the needed money to pay off the loans. This is even more true for members of the military who are deployed overseas while still owing money.

Escaping the Debt Cycle

The first place for active service members to look for help is on base. Base social services departments can provide financial counseling or give a referral for counseling. Social services departments may also be able to provide information on financial assistance programs that may be available. Veterans will need to look to their local Veteran’s Affairs office for help. A variety of programs are available to help veterans who are experiencing financial difficulties. Borrowers should be aware that there are also scams involving debt relief. If someone offers debt relief services, but uses high pressure sales techniques and charges a fee, the service is likely a scam.

Avoiding Short Term Loans

The best way to avoid the problems caused by short term loans, is to not take one out. Learning to live on a budget and build an emergency fund is something that most people struggle with completing. However, staying out of debt and having the money to take care of an emergency auto repair bill, to replace a broken appliance or to cover any other expense can result in significant savings over time and help a person to build a solid financial future.