Trick or Treat: Practices of Predatory Lenders
It’s a spooky time of year, but if you’re drowning in debt, predatory lenders might be the scariest thing you’ll have to face this Halloween. Predatory lenders prey on those struggling with debt. They offer attractive, too-good-to-be-true solutions and then scam borrowers out of money and trap them in a cycle of debt.
At this time of year, when we’re all preparing our finances for the holiday season, predatory lenders are looking to trick you into believing they have a treat.
Leslie H. Tayne, Esq., founder and head attorney of Tayne Law Group, appeared on ABC7 on Your Side to discuss what to look out for when it comes to predatory lenders.
Frightening Interest Rates
One of the biggest red flags of predatory lenders is their ridiculously high interest rates, often rising into three figures. Predatory lenders may advertise a lower interest rate. But if you read the fine print, this is often the nominal or monthly interest rate, not the APR. When taking out a personal loan, be sure to read your entire loan agreement to understand how your interest will be structured. Interest rates that high means that balances will grow more quickly than the borrower can keep up with. As a result, the borrower can get trapped in a debt cycle.
Tricks Up Their Sleeves
Predatory lenders have all kinds of tricks they’ll use to convince you to borrow from them. They may promise you large sums of money immediately. They may send you a fake paper check that says things like “You’re preapproved” or is filled out with the amount of debt you’re in. Additionally, predatory lenders may ask for your personal information, including your bank account info. This should raise an immediate red flag. Never give your bank account information over the phone or because you received an unsolicited letter in the mail.
Scary Add-On Fees
Another common predatory lending practice is charging additional fees to make an extra buck. Many predatory lenders will not be transparent about these additional fees. They’ll attempt to roll them into the overall cost of the loan to trick the borrower. Often, they claim that these fees are for things like unnecessary credit insurance. However, they may pressure the borrower into paying them or state that the loan is contingent on the borrower paying the additional fees.
Ghosting on the Credit Check
If the lender doesn’t run a credit check, it’s probably a scam. Many predatory lenders will claim that you’re pre-approved without a credit check or with bad credit. Any legitimate lender will never allow you to qualify for a loan without a hard inquiry of your credit. Predatory lenders might also try to pull a bait-and-switch. They may claim that you were approved for a certain loan, and then at the last minute claim, your credit isn’t high enough and attempt to force you into a more expensive option.
Shady Loan Flipping
Loan flipping is a common predatory loan practice. With loan flipping, lenders encourage you to refinance an existing loan into a more expensive one. They’ll also, of course, charge you more fees to do this. Refinancing should save you money, but loan flipping means you’ll pay more.
Predatory lenders are lurking around every dark corner at this time of year. When seeking a personal loan to help get you out of debt, it’s essential to do your research. Be on the lookout for suspicious practices. Being aware of what to look for can help you pull the mask off predatory lenders.
Leslie Tayne and the debt professionals at Tayne Law Group frequently work with clients who have fallen victim to predatory lending practices. Contact Tayne Law Group today if you have questions about predatory lenders.