Tower Loans is a company that provides short-term, small-dollar loans, sometimes called payday loans, to individuals in need of cash. With interest rates among the highest in the finance industry and concern about trapping borrowers in cycles of debt, tower loans are a complex topic that deserves informed consideration.
What are Tower Loans and How Do They Work?
Tower Loans is a for-profit company that operates over 250 storefront locations across 11 states, primarily in the southeastern United States. They provide unsecured installment loans, lines of credit, and short-term payday loans to individuals who may have challenge accessing more traditional forms of credit from banks or credit unions.
The basic product offered is a short-term payday loan, typically ranging from $50 to $500, with terms of 7-31 days. To take out a payday loan, borrowers must have a job, a checking account, and proof of income. Interest rates on payday loans from Tower Loans fall in the range of 300-700% annually, depending on the state. This means for a two-week $100 loan, a borrower may owe $115 at the end of the term.
If a borrower cannot repay the full amount owed on the due date, Tower Loans offers extensions known as rollovers. For a fee, usually around $25 per extension, the due date can be pushed back by around two more weeks. This allows borrowers more time to come up with the money owed but increases the overall cost. There is no limit on how many times a loan can be rolled over, creating potential debt traps for those who struggle to repay.
Pros and Cons of Tower Loans
Pros
- They provide access to credit and emergency funds for those who may not qualify for bank loans or lines of credit as a result of poor credit history.
- The application and approval process is quick, often allowing customers to walk out with cash in hand the same day.
- Borrowers use the funds for a variety of expenses like utilities bills, rent, car repairs, and medical costs.
Cons
- Interest rates on payday loans from Tower Loans range from 300-700% APR, making them some of the most expensive forms of credit available.
- Rollovers allow loan extensions but drive up costs significantly if used repeatedly without full repayment of the original amount.
- Critics argue the short loan periods and high fees trap many borrowers in long-term cycles of debt as they struggle to repay and take out new loans to cover previous ones.
- Late and nonpayment fees can also drive up costs dramatically for those unable to repay on time.
- The loans are not reported to credit bureaus so they do not help borrowers improve their credit scores over time like other types of loans might.
Clearly, both sides of this issue have merit. While tower loans fill an important need for emergency funds, concerns around predatory practices and unsustainable debt cycles are legitimate as well. As with any financial product, education and moderation are key to weighing costs and benefits responsibly.
Alternatives to Tower Loans
For those seeking alternatives to payday loans from Tower Loans, here are some options to consider:
Credit Unions
Credit unions often offer small personal loans and lines of credit to members with subprime credit at lower interest rates than payday lenders typically charge. Rates on credit union loans average around 28% APR.
Savings Cushion
Ideally, maintaining an emergency fund of $500-1000 can provide a low-cost buffer for unexpected expenses without relying on high-interest credit options. Even small regular savings add up over time.
Utility Payment Plans
Many utility companies offer payment extensions or deferred payment agreements for a fee if bills cannot be paid in full on time. This avoids disconnection while spreading costs over multiple months.
Non-Profit Loans
Some community organizations offer microloans of $500 or less to qualifying residents at 0% interest or very low rates. Credit counselors can identify local resources.
Loans from Family/Friends
Consider borrowing small amounts interest-free from trusted social contacts if needed temporarily before payday. Set clear expectations and terms to avoid damaging relationships.
While none are perfect solutions, exploring lower-cost options should be prioritized over costly short-term loans if circumstances allow. Education is key to making responsible long-term financial choices.
Understanding the Debate Around Regulations
The debate around tower loan regulations involves weighing several perspectives:
Pro-Regulation View
Those pushing for stronger regulations argue payday lenders use predatory practices that trap vulnerable borrowers in cycles of excessive long-term debt. Capping interest rates and limiting rollovers/late fees is needed to curb abuses.
Anti-Regulation View
Payday lenders say imposing overly restrictive regulations will eliminate access to credit for subprime borrowers with no better alternatives. Interest rate caps could force many lenders out of business, leaving a gap unfilled.
Balanced Perspective
Some believe targeted reforms, like limiting consecutive rollovers to prevent long-term dependency while allowing modest rate caps and reasonable late fees, could curb predatory tendencies while still allowing short-term credit access. More financial education may also help borrowers avoid unsustainable usage.
Overall, there are good-faith perspectives on both sides, and reasonable people can disagree on this complex issue with moral and practical considerations on each side. A balanced, data-driven approach is needed.
Borrower Tips and Protections
For those who must utilize tower loans despite the risks, here are some tips and protections to consider:
- Only borrow what you can realistically repay by the due date without rolling over. Come up with a realistic repayment plan.
- Understand all fees upfront so you know the total cost of the loan. Ask questions if any terms are unclear.
- Compare loan offers from multiple lenders – rates and fees can vary significantly even in the same area.
- Do not take out a new payday loan to pay off an existing one. This traps you in long-term debt.
- Most states have caps on consecutive rollovers, usually around 4-6, to prevent endless extensions. Do not exceed state rollover limits.
- Consider complaint resources like the CFPB or state regulatory bodies if you suspect illegal lending practices or problems with loan terms.
- If struggling significantly, inquire about lower-cost hardship extensions, payment plans, or deferrals to avoid late/nonpayment penalties.
Being an informed consumer is the best protection when utilizing high-interest, short-term credit options like tower loans. Know your rights and understand all costs involved.
Common Questions About Tower Loans
Here are answers to some of the most frequently asked questions about tower loans:
How can I get approved for a tower loan?
To qualify for most payday loans from Tower Loans, you need:
- Verifiable job or other source of regular income
- Open and active checking account
- Government-issued photo ID
- Proof of address and income (pay stubs or tax returns)
What is the interest rate on a tower loan?
Tower Loans interest rates range from 300-700% APR depending on the state. On a two-week $100 loan, typical interest would be around $15, making the loan amount due $115. Rates are set by individual state laws.
Can I get a tower loan with bad credit?
Yes, one advantage of tower loans is they provide short-term credit access even to those with subprime credit histories. Your income and bank account status are prioritized over your credit score.
Can tower loans help build my credit?
No, most payday lenders like Tower Loans do not report payment histories to the major credit bureaus. So, these loans won’t directly help or hurt your credit scores over time like other forms of reported installment loans could.
What happens if I can’t repay my tower loan on time?
You may be charged late fees, and your account may be sent to collections if it is significantly past due. Most payday lenders also offer rollover extensions for an additional fee to avoid default, but these increase overall loan costs significantly with repeated usage.
Are there better alternatives to tower loans for quick cash?
For some, lower-interest credit union loans, utility payment plans, microloans or modest borrowing from trusted contacts can be better temporary options depending on individual circumstances and creditworthiness. Maintaining an emergency fund is the best long-term solution if possible.