With a Predatory Car Loan You Could Lose More Than Just Money

Money is tight these days and it is rather tempting to apply for loans especially if you like cars. But before you take a step forward to apply for any loan in general, and car loans specifically, remember that it is a jungle out there and loan predators are more of a reality than you would like to believe.

The thing with loan predators is they make it all seem so easy and above-board that it is natural to just fall into their traps. However, loan predators’ bank on their ability to sell through manipulation and subterfuge which makes it impossible to tell if they are predators or genuine lenders.

Loan predators zone in on the weak, the old, and those with bad credit histories because they are more vulnerable and easier to convince. According to the Center for Responsible Lending, predatory lending practices can happen in a wide range of loans including home improvement, auto financing, car title, tax refund anticipation, and payday loans.

Kathleen Day, spokeswoman for the Center for Responsible Lending has said, “There is a growing trend among some large, reputable banks to offer high-cost, short-term and pay day loans called `account advances’. These loans can have an APR (annual percentage rate) in the triple digits.”

There are cases of banks charging $2 as interest for a $20 loan. These kinds of interest rates are normally for short term loans. But before dismissing the warning as limited to short term loans, it is better to be wary of auto loans or mortgages which can also entrap people.

Below are a few tips to help you beware of predatory loans:

• If a lender offers you more money than you can repay then a red flag needs to go up.

• If to cover up for bad credit, the lender asks you to sign blank documents, or make false statements on the loan application, it is better to read the fine print before doing so.

• Steve Wolf, certified fraud examiner and executive director of Capstone Advisory Group LLC in Washington, D.C., says borrowers should also be wary of any lender that:

1. Charges excessive fees or penalties if the loan is refinanced or payment is late.
2. Puts in fine print that the borrower cannot take legal action against the lender.
3. Adds unnecessary insurance or financial products to the loan.

The following questions should help you to be prepared to tackle the unexpected when applying for a car loan for example:

1. What is the real rate of interest? This should include all hidden costs like origination fees etc.
2. What is the term of the loan, i.e. six months, one year etc.? A car loan with tenure of 10 years is really not viable because of the accrued interest you would have ended up paying over this period.
3. Will the interest rate be fixed or compound?
4. What are the penalties for late or delinquent payments?

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Car loans are also typically called `car title loans’ which essentially puts you at the risk of losing your car.

So before you sign the loan papers check for the following:

Interest rates

Car title lenders typically express the cost of their short-term loans through fees, but in reality the loan may attract an annual interest rate of 300 percent or more.

Short term loans

Car title loans are normally due within a month and it is often difficult to pay off within such a short period of time. This may lead to taking other loans to repay the car loan setting off a repeated loan pattern.

Short-term loans also become long term loans and when they do, their cost becomes much higher.

Losing your vehicle

As the loan title indicates, a `car title’ loan could mean that if you don’t pay up the loan, the lender could take away the car.

So before you lose your car, or worse, your shirt, check the fine print, recheck the credibility of the lender and ensure that you are not putting yourself or your car at risk.