You may have seen an advertisement online or on television for payday loan companies offering great deals. What you may not have seen is the fine print at the bottom of the ad hiding very important details associated with these loans. While some payday or title loan companies are legitimate and offer decent deals for consumers, many more lurk around the corner that are waiting to take on an unsuspecting consumer. Here are a few of the problems associated with many of these loans and companies that offer them:
Secured Loans Only
Ever wonder why these companies don’t require a credit check? It is because they are obtaining legal rights over one or more of your assets in return for the loan. This means that if you default on repaying the loan, the lender has the right to seize whatever property you secured as collateral. Things can get even further complicated if you were to end up in bankruptcy. In this case, there may be more than one creditor who holds rights over your assets for liquidation.
Outrageous Terms and Conditions
Have you ever really read the fine print on these loans? Many of these loans include interest rates of 50 percent or more, which means that you will be paying nearly double what you borrowed. One company recently advertised on television requires a 116% interest rate on a $5,000 loan, to be repaid in 84 payments. Following these terms and conditions means that (to borrow the original $5000) you would be repaying roughly $18,000 over a 7 year period!
The FTC has implemented a maximum interest rate cap for payday or title loan companies, which prevents them from charging interest rates over a specified amount. The FTC also requires that companies disclose the terms and conditions to consumers before the loan is approved as well as inform consumers of their rights. Where is the problem? The problem is found with companies who operate either unregistered with a state or houses their registration through an Indian Reservation. Due to the treaty formed between the government and Indian tribes companies operating on their land cannot be policed or regulated by these rules, leaving consumers unprotected in the event of a problem.