Don’t take the bait when predatory lenders are trying to lure you in.
Recognizing and avoiding these scams can save you many financial headaches in the future, including high debt, crumbling credit, and even the loss of your home.
Predatory lending generally refers to lending practices that impose deceptive, unfair, or abusive terms on borrowers. Many of these practices are illegal. Others are legal, but not in the best interests of the borrower.
Common predatory lending techniques include payday loans, auto title loans, and subprime mortgages.
Creditors often target those with limited financial resources and those in need of emergency cash (eg, paying medical bills, doing home repairs, paying for a car) or even victims of natural disasters. And it’s not just the criminals who engage in predatory borrowing tactics. Sometimes reputable banks, finance companies and other retailers can practice these deceptive tactics.
Watch out for excessively high interest rates or inflated fees that add to the loan interest rate.
Always carefully review the entire loan program. Ask for an explanation of fees, charges or terms and conditions if you are not comfortable with them. The Truth in Lending Act protects consumers and legally requires lenders to provide you with loan cost information so you can compare loans.
Beware of unannounced refinance offers, including telemarketer loan solicitations and door-to-door sales, as well as home equity loan offers tied to unsolicited home improvement contracts. If you are considering taking out a loan, make sure that it gives you a benefit, such as reduced interest rates.
Compare loan offers and terms from multiple lenders.
Don’t let lenders point you to more expensive products when you may qualify for traditional loans. You can also ask the lender if they will waive or reduce the loan fees or fees associated with the loan.
Beware of “bait and switch” tactics.
This is when a lender initially offers a set of conditions, but then forces you to sign a contract with more expensive terms or time limits and shows you that there were other fees or conditions. Also, if you feel pressured into signing a loan agreement immediately with a lender, walk away. If the offer is good today, it should be tomorrow.
Other popular predatory lending practices that you will find are advance fee schemes, internet payday loans, and service scams.
The most common is the phantom help scam. This is where the fees are charged for “services,” which are really just paperwork and phone calls that the consumer could easily handle. Other examples include leaseback or buyout, refinancing, Internet and telephone scams.
Prepayment programs are often presented as “no cost” or “no cost” loans, where the organization will ask for an upfront payment for the “first payment” or “insurance”. After that, however, no loan is given.
Internet payday loans will use Automated Clearing House (ACH) transactions to deposit and deduct funds from a borrower’s account. In Kentucky, it’s illegal. Kentucky law requires that a check be presented in an authorized location. Internet payday loans can lead to overdrafts with fees that can add up quickly.
Remember, if the loan sounds too good to be true … it probably is!