Loan shark refinancing programWhen he needed money, the Manhattan cook went from bank to bank, applying for loans as small as $500—but no one would lend to him because he didn’t have collateral to secure the debt.

“What I used to tell them is, if I had property, I wouldn’t be asking you for a loan,” said the 45-year-old, who spoke through an interpreter about his financial struggles and asked to remain anonymous. “Unfortunately, they would tell me, that’s how banks work. If you don’t have anything, we can’t lend you anything.”

The cook lives in the city with his wife and three children and also supports his mother, who remains in Mexico, the country he left 18 years ago. When his mom became ill not long ago and her costs rose, it became difficult for him to pay all his bills. Desperate, he turned to a loan shark for an infusion of $5,000. The loan shark charged 20% interest each month, the equivalent of 240% a year.

At such a high rate, he could only afford to cover the interest and periodically roll over the debt into a new loan.

Refinance Rescue

While attending an English class at a community center, he found out about a loan shark refinance product offered by Neighborhood Trust Federal Credit Union in the city’s Washington Heights section. Through the nonprofit lender, he paid off the $5,000 loan as well as some additional credit card debt by borrowing the needed amounts at a 15% annual rate.

Now he makes monthly payments of $350 to the credit union, less than half what he was paying the prestamista, as this sort of predatory lender is known in Spanish. He’s also putting 2% of his earnings into a savings account while working to pay off the three-year credit union loan.

Charging more than 16% interest on a loan by an unlicensed lender is illegal under New York’s usury law. Even state-licensed lenders can’t charge more than 25% on debts of less than $2.5 million, according to the state Department of Financial Services. But that hasn’t completely eliminated high-rate, short-term loans made to residents by local lenders and over the Internet.

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