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4.05 Predatory Lending & Debt Management

Last updated 2 months ago
26 questions
Note from the author:
1

What do you think the cartoonist is trying to convey about payday loans?

EDPUZZLE: Predatory Lending 📷7 min

Payday lenders don’t actually have a giant mousetrap strapped outside of their buildings to warn you of possible danger, so it’s better for you to understand how they work. Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.
2

What type of marketing techniques do predatory lenders use? Hint: Choose two correct answers.

1

Based on what you've learned so far, what do you think is the average annual percentage rate (APR) on a payday loan?

4
  1. Payday loans usually have low interest rates__________
  2. Payday loans do not have any additional fees like other types of unsecured loans__________
  3. Payday loans get borrowers into a sometimes inescapable cycle of borrowing money because of the high interest rates and fees__________
  4. To qualify for a payday loan you must have a checking account and excellent credit score__________

ACTIVITY: INTERACTIVE: Shady Sam 📷25 min

Maybe the previous resource is right, and payday lenders are playing a vital role in some communities. But is that always the case? You’ll get to try being a loan shark yourself in this game. Follow the directions onscreen and on the worksheet to complete this activity.
20

Part I: Play Shady Sam
  1. Go to shadysam.com. Enter your first name and click START PLAYING.
  2. End of the game: Take a screenshot of the final email and paste it below. Then, click “Clock Out” and continue to answer the rest of the questions.

1

Part II: Reflection Questions
  1. Reflect on your emotional state as you played the game and saw your total profits at the end. Explain why you felt that way.

1

As an employee of Shady Sam, your goal was to maximize profits. How well do you think you did?

2
Most borrowers only pay attention to the monthly payment when taking out a loan.
Why do you think this is?_______
How can this benefit the lender?_______
1
The loans that were most profitable tended to have the __________terms and the__________monthly payments.
1

Which loan kept the borrower returning for extensions? Why do you think these loans are popular despite trapping borrowers in a cycle of debt?

1

One of the most profitable loans that you offered was the adjustable-rate mortgage. What risk is the borrower taking with this loan?

3
What are three takeaways you learned from playing Shady Sam that will help you as a borrower in the future? Be specific._______ _______ _______
1

How do the Annual Percentage Rates (APRs) on payday loans get to be so high?
  1. The loans go to affluent banking customers, so they charge a lot for the exclusivity
  2. The loan amounts are small, but the fees charged are relatively high and are renewed on a very short time-scale
  3. They make most of their money through ATM withdrawal fees as well as overdraft fees on checking accounts
  4. The amount of money people borrow using payday loans is typically quite high – $10,000 or more – so the fees are also high

4
Three of these statements reflect payday loans. Choose the other statement, which is aligned with a traditional bank loan instead.
  1. Easy to obtain without a lot of paperwork__________
  2. Requires a credit check and suitably high credit score__________
  3. Requires payment in full in less than a month__________
  4. APR can easily be over 200%__________
1

Why are payday loans so popular?
  1. They are a fast, easy way to save money and budget effectively
  2. They meet the need for quick cash for very large purchases such as cars and homes
  3. They are a terrific way to build your credit history and improve your credit score
  4. They are accessible to people who need to borrow small amounts of money and don’t have any better options

VIDEO: What Happened When I Didn't Pay a Debt Collector 📷7 min

Many people choose to take out debt for a variety of reasons, like taking out an auto loan to buy a car or a mortgage to buy a home. That’s when the responsibility of making timely payments comes into play. Watch the video to hear the story of JoAnn and her experience with debt. Then, answer the questions.

1

Describe a time in your life when you should have been more proactive, but procrastinating ended up hurting you in the long run.

1

What are some things you can do to make sure you don’t end up in the same situation you described above, or in JoAnn’s situation, when it comes to managing your debt?

You only have 2 options to get out of debt:
1. Increase your INCOME
2. Decrease your expenses.

How can you do either of these options:
8 Strategies for Getting Out of Debt
● Gather Your Data
● Make a Financial Inventory
● Lower Your Interest Rates
● Pay More Than the Minimum
● Increase Your Income
● Cut Unnecessary Spending
● Create a New Budget
● Create an Emergency Fund
1

One of the strategies suggests increasing your income by doing things like asking for a raise, starting a side hustle, or even getting a second job. Although it would be effective, what problems could come from doing these things and why might it be difficult for some people?

1

Are there any other strategies you think you would struggle with more than others? If so, explain why.

EDPUZZLE: Strategies for Debt Repayment 📷8 min The snowball and high rate methods are two popular strategies to pay down multiple debts. Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.
1

All of the following are examples of debt except…
  1. Credit Card balance
  2. Scholarship
  3. Student loan
  4. Auto loan

1

If you are using the Snowball Method to get out of debt, which debt do you focus on first after you've made all of your minimum payments?
  1. The debt with the highest balance
  2. The debt with the highest interest rate
  3. The debt with the lowest interest rate
  4. The debt with the lowest balance

1
The AVALANCHE METHOD of getting out of debt requires you to pay the MOST amount of money on the debt with the__________ interest rate.
1

Which is a disadvantage of using loan CONSOLIDATION to pay down debt?
  1. There are multiple due dates for your loan payments
  2. The new loan may have a lower interest rate
  3. You have to keep track of multiple loans
  4. The new loan may have a higher interest rate

1

If the AVALANCHE Method makes most mathematical sense, why do you think someone might use the SNOWBALL Method instead?
  1. The Snowball Method saves more money in interest
  2. The Snowball Method allows you to get out of debt much faster
  3. The Snowball Method consolidates all of your debt payments into one, manageable payment each month
  4. The Snowball Method can motivate you to continue paying off your debt

ARTICLE: Legal Actions Creditors Can Take If You Don't Pay 📷5 min Even if you use the strategies you just learned about to help pay off your debt, it’s possible that you might still reach a point where payments become difficult to make. Depending on the type of debt you have, the potential consequences that come can vary. Read the article. Then, answer the questions.
1

What types of consequences can occur if you don’t pay your loans?

1

What types of property can be seized if you don’t pay your loans?