Submitted by Jen Jones on Mon, 04/13/2009 - 9:02am
We have all seen the loan offers in the mail, the banner ads online and even the commercials that air on late-night television. Even though we all scoff initially, knowing what's in store if we call, your outlook changes quickly when the realization hits that you too are saddled with mounting debt.
But easy-to-get loans with high interest rates and hidden fees are not the solution to your debt problems. All too often, the opportunity to get that money so quickly, certain you will not be the one who gets snagged by the fine print, is sometimes too appealing an opportunity to pass up.
Predatory lending has become one of the most common contributors to America's debt problems. By targeting individuals, like yourself, who are already beginning to feel that stomach pit grow in unison with the number of bills that land on the kitchen table every week, fast money lenders have been able to expand their presence substantially, popping up on corners across the country like common neighborhood diners.
But it's not just the street corner franchises that are taking advantage of those seeking financial relief, it's also our banks. Our trusted, professional financial institutions that help us with mortgages, checking accounts,CDs and small business loans. There was a time when a man in a suit with an outstretched hand and warm smile was a symbol of trust and goodwill. And while many, many banks remain filled with welcoming, customer-oriented financial experts, a stigma of mistrust has filtered into the banking industry. Unfortunately, some of it is well-deserved.
It is critical then, especially for those seeking relief from their financial challenges, that you avoid the hard money lenders at all costs. Watch for signs of predatory lending like unreasonable fees that can be worked into the monthly payment. Since they are broken up into small pieces and only add a few dollars per month on to your payment, they seem reasonable. Be careful though, because over the life of the loan, these fees can end up totaling more than 10% of the loan cost.
Prepayment penalties (yes, a penalty for paying early) can be substantial in a predatory lending situation. With a high-interest loan, you are always best served to pay as much as you can as often as you can. However, less than professional lenders will charge you a fee for doing so--yet another example of why getting a loan to pay off other loans is a bad idea.
If you see signs of or are given sales pitches for added products, like insurance plans, you can be fairly confident it is not a good alternative. The costs for these products will be gladly added on to your loan payment each month, further hampering your ability to pay it back.
Be extremely cautious of any loan that offers "mandatory arbitration." This means that you are not allowed to seek court assistance to pay back the loan if your financial situation worsens. This can be a very complicated matter and will simply augment your stress and frustration.
The truth is, getting more debt to pay off debt is not the answer for anyone with serious financial concerns. The most beneficial remedy for relieving serious and chronic financial pain is to file bankruptcy. If you are at the point where payday lenders, car title loans and street corner financiers seem like your best solution, then it's time to start fresh. Don't repeat the cycle; seek real help, not more debt.
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