Avoiding Predatory Lenders
Predatory lenders and financial service companies can be found on nearly every street corner or strip mall around the country. There is no denying that these shops often take advantage of the financial vulnerabilities of our many of our Veterans. Instead of helping better their financial situation, predatory lenders prey on them and charge high interest rates and astronomical fees. Unfortunately, these organizations are never truly out to help anyone but themselves and their bottom line.
There are ways to avoid doing business with these predators. Below, we break down the different types of lenders and services, providing information on each that will help you be more knowledgeable about their practices, so you’re not taken advantage of when conducting your financial transactions.
What is Considered Predatory Lending?
The term predatory lending is used when a company or lender offers financial services like loans, check cashing, pay day advances, or bill payment to individuals with unfair, deceptive, or abusive terms – like extremely high interest rates and fees or unreasonable repayment conditions.
They will often use untrue and even unlawful sales gimmicks to target and take advantage of individuals who may not fully understand the transactions they are conducting. These tactics often result in many veterans, especially those living on a fixed income, paying for a service or taking out a loan that they may not be able to afford or pay back easily.
These companies could be thought of as loan sharks targeting those with limited access to resources, individuals with an urgent need for cash to make ends meet, or someone with a low credit score who may not be able to qualify for a traditional loan or credit card.
Types of Predatory Lenders
- Payday Loans: These lenders offer high cost, small dollar amount short- term loans that give individuals some cash to make it to their next payday. They are typically due to be re-paid in 2 weeks to 30 days and charge an annual percentage rate (APR) from 300-780%. Most of these loans can also be renewed for a fee if the borrower is unable to pay in full when due. Unfortunately, the majority (around 80%) of pay day loans end up being reborrowed within 14 days and even more (90%) are reborrowed within 60 days. This often creates a cycle of debt that can become overwhelming.
- Auto Title Loans: These loans are based on the value of your automobile and also carry high interest
- rates. You will be required to turn over the title to your vehicle, which is held until the loan is repaid. These loans are risky and could result in losing your automobile.
- Check Cashing Stores: Advertised as being a convenient option, these stores will cash your paycheck for a fee based on the amount of the transaction. Typically, around $4.00 per $100.00, which can add up quickly and is around triple the cost of a traditional bank account.
- Rent to Own Stores: Rental stores will allow you to take possession of an item, like a TV, an appliance or furniture and pay weekly rental fees. After making a certain number of payments, the item becomes yours. However, this is very costly and typically results in individuals paying 3-4 or even 5 times the actual cost of the item if it was purchased directly from a retailer in cash or a traditional credit line.
- Pawnshops: Often used as a quick way to get cash, pawnshops will take your item of value in exchange for money. However, they rarely give money equal to the value of the item and can lead to losing it if you are unable to repay.
How to Avoid Predatory Lenders
- Educate Yourself – Research the company and products they offer before going into the location or storefront.
- Ask Questions – Find out exactly what fees are being charged and how much the payments will be before moving forward.
- Read before Signing – Know the details. Things are sometimes not outlined through regular conversation or may not be presented factually.
- Use Common Sense – Know that these organizations are truly only looking out for their own best interest and will often embellish or downplay details to convince you to move forward.
- Assess your Situation – If you find yourself in a situation and in need of quick cash often, it’s a good idea to do a financial check in and take an honest look at your financial behaviors.
- Seek out Traditional Banking – Having a traditional bank account not only keeps your funds more secure, but it also saves you money. It’s estimated that someone without a traditional account will spend up to as much as $40,000 in fees over their lifetime to access and use their own funds and benefits. The VA has partnered with the Association of Military Banks of America, to offer banking solutions to Veterans through the Veterans Benefit Banking Program. You can find a bank or credit union committed to helping Veterans receive their benefits free of fees on their websites.
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