What You Should Know About Online Loan Services Personal finance
You’ve seen the advertisements. You need the money, and these websites can give it to you, often within 24 hours and without a credit check. Should we accept the offer?
Common sense would suggest no. Everyone knows there is no such thing as a free meal, and the terms of many quick and easy loans mean that a financial company will have you for the lunch. Certainly not all online loan services are shady. Many mortgage companies are reputable, as are many loan companies that offer low rates based on a high credit rating.
But if you have lousy credit and are still offered a loan, that’s a red flag that you’re about to accept money that you’ll later regret.
So, before using an online lending service, do your research – check out reviews online, comb through the internet to see if there is a barrage of negative press on the business, and study the fine print of the business. ready. At least if you still take the loan, you will know what to expect. And what could it be? Here are details that you won’t often find in advertisements for online loan services.
These are often high interest rate loans. We are talking about extremely high interest. For example, if you take out a loan of $ 1,000, you might be faced with an annual percentage rate of 300%, which is typical for these sites, although there are reports of some sites offering APRs above. 1000%.
Your interest will likely accumulate daily from the time you take out your loan, and payments will likely be spread out so that the financial pain doesn’t seem too severe – say, $ 258 per month. But such an arrangement is only good for you in the short term and very good for your lender in the long term. In eight months, for example, you could end up paying over $ 2,000 on a $ 1,000 loan.
You really need to check if the loans are sustainable, “without repeated renewals,” says Sean Coffey, media and development manager for California Reinvestment Coalition, a nonprofit that promotes fair and equal access to credit for all communities. from California. “And you should check to see if the interest rates and any other additional fees charged are fair,” Coffey adds.
Coffey refers to the Military Loans Act, which states that if you are an active member of the armed forces or on active duty on guard or reserve, you cannot pay an interest rate greater than 36% on many loans. consumption, including many payday loans, auto title loans, and tax refund anticipation loans.
Says Coffey, “If 36% APR is good for the military, why isn’t it good for all other consumers?
These loan services are linked to your bank account. Online loan services give you money by direct deposit to your bank account, often the next day. They also accept your payments by direct debit from your bank account.
This can be a problem, says Katie Ross, education and development manager at American Consumer Credit Counseling. “Borrowers may find it difficult to keep funds in their account, so there is an increased risk of overdraft penalties,” she says.
So now, not only are you stuck with a really terrible loan, but your bank account is in the negative. Whatever financial problem you solved by taking out the loan, it created several new money problems.
If you are paying off the loans, you may be asked to refinance. Pay off the loan on time? Great, you could be rewarded by being asked to stay in debt. Don’t be surprised if your lender gives you the option of refinancing the loan before it’s paid off, which will keep you in debt to the lender even longer.
Your personal information will likely be sold. That’s right. If you go to a loan site to apply for a loan, you may soon feel like Cinderella at the prom, courted by many suitors.
“People have to be very careful when using online loan services because in some cases the website you are visiting may not be the actual lender,” Coffey said. “It may be a broker who will sell your information as a lead to other lenders. This means that your information can be sold to multiple lenders, and you can receive phone calls from businesses long after you get a loan or no longer need it. . “
Of course, in some cases who cares? Aren’t you already subscribed to every Under the Sun mailing list? You belong to every reward club that exists. Your personal information is a commodity, and a part of your life is still being sold.
But – do you really want this part of your life sold?
You will have little recourse if you have any problems with these loans. Michael Bovee meets many consumers who have problems with online loan services. Bovee is the founder of Consumer Recovery Network, a debt and credit education website.
Bovee points out that many online loan services are not strictly regulated in most states. “Stricter national rules at the federal level are coming, and it can help reshape the business practices and lending rates of these lending websites. But even then there will be traditional lenders who will offer loans and rates a lot. more competitive, ”said Bovee.
But for now, if you’re in trouble and can’t pay off your loan, good luck, according to Bovee.
“Online lenders are not as flexible with which to work in order to bundle into affordable payment plans. Many adamantly refuse to work with nonprofit credit counseling agencies the same way almost all banks do, ”he says.
Bovee sometimes encourages consumers to file for bankruptcy after getting too involved with online lending sites.
“Just yesterday I consulted with a mother and her daughter about the daughter’s two unsecured credit cards and the seven online loans she could no longer keep up with,” Bovee said.
The fact that she was able to get seven loans? That says a lot about the ethics of many online loan companies, according to Bovee.
“There’s no way a typical lender would have accepted the third loan, let alone the seventh,” he says. “But that was not the case with online lenders. Even though this young millennial’s ability to repay loans based on her income was flagrantly lacking, the loans were made… and more.”
But isn’t the millennium partly responsible?
“Of course,” Bovee said. “But at some point, even overly drunk people are cut off by the bartender, and the party ends.”