The cost of living can be expensive these days. Most of the time, you won’t be able to make a serious purchase without borrowing money. Home loans and car loans are a popular choice for many people who need the funds. But not everyone can have access to banks as their lender. This might be because of bad credit scores or the high requirements that the banks have. There are other lenders besides the banks, but this can cause problems.
A major issue nowadays is predatory lending. There are lenders out there who are willing to give you the money you are asking for but could trap you with high charges and skyrocketing interest rates. The result is that they end up draining your funds in the long run. If possible, you do not want to get into a loan agreement with a predatory lender. Fortunately, certain red flags will help you recognize whether you are dealing with one or not.
No Income Checks
Lenders make their money by lending you money and charging interest. They should show some interest in whether you are capable of doing so. If they don’t ask you about your income, then that is a bad sign. Legitimate lenders will check your income and whether you have a job. They usually then base their loan around your ability to pay it.
Predatory lenders are very happy that you will not be able to pay the loan. When you eventually can’t pay, this will force you to roll over the loan. This means that you extend payment and you end up paying more and more money to the lender. The result is that you might end up paying a loan for years to come instead of the normal three to five years from a legitimate lender.
Short On Information
When you are hoping to get a loan from a bank, they will usually have a complete payment schedule for you. For example, if you ask for a loan of a certain amount, they can quickly present you with how much you have to pay for the next 36 to 60 months. It will also be clear how much interest you will end up paying, depending on the terms that you choose. This payment schedule will also show the breakdown of relevant fees you have to pay.
A predatory lender will not want you to know this information. The high-interest rates that many of these lenders charge will become very obvious once it is in solid numbers. Additionally, the added fees that many of these lenders add will be easy to see. If the lender you are considering is ignoring your requests for the amortization schedule, then it is better to move on.
Quick Payment Terms
One thing that you will notice from bank loans is that the payment plans usually involve months of payments. The usual range is from six months to five years. Compare this to the predatory lender terms that often require you to pay within a few weeks fully.
The reason for this is that predatory lenders don’t want you to pay the full loan at all. They expect you to roll over the loan into a new cycle. This cycle is as short as the last one and has added fees. If you can’t pay in full, the interest keeps getting higher and they profit more from your loan.
If the lender says you have to pay everything with interest in a few weeks, then you should walk away. Look for a lending institution that gives reasonable installment payment plans instead.
No Customer Service
If you ask the lender about whether they have a customer service line and they say no, you should skip them. Loan payments are important, and you need to be able to call them in case of an emergency. Many banks have a customer service line that people can call to consult about various things. Your lender should have one so that you can clear up payments and other issues. If they will not even allow you to talk to them, then there is likely something strange going on.
Besides customer service, you should also be able to find customer reviews of the lender online. If you can’t seem to find anything about them, then that should make them very suspicious. It is a good idea to pass on them rather than risk it.
Some lending options out there sound too good to be true. There is a high chance that they are debt traps for those who are not careful. Don’t get caught by knowing what signs to look out for.