The allure of a quick loan can be hard to resist when there is a pressing need for immediate cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who might charge high interest rates and offer loan terms that are difficult to meet.
This is called predatory lending, and it works in the best interest of the lender, not the borrower.
When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.
Guide to Predatory Loans and Avoiding Them
Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less-than reputable, those two things become even more important.
One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AAnnualCreditReport.com. Personally identifiable information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.
Making sure other items on your credit report are accurate is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.
When you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.
What Is Predatory Lending?
Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and for other unfair and discriminatory reasons.
Lenders who offer financial products that are typically considered predatory loans do not have the best interest of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics.
Predatory lending may often mean a short-term, high-interest loan that a borrower might have difficulty repaying, potentially leading to a cycle of debt.
Predatory Lending Tactics and Practices
Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.
Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.
To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.
- An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS). Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠ Opens A New Window..
- Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.
- High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.
- Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.
Common Types of Predatory Loans
Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.
Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.
Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — on average, 400% APR, but can be much higher.
Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.
Subprime mortgages are another predatory lending example.
This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.
What Are Good Lending Practices?
A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.
- Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.
- Answering your questions. When you have questions about a lender’s loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.
- Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans.
- Realistic offers. A lender that has your best interest in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.
What Can Be Done if You Are a Victim of a Predatory Loan?
One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.
All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.
Personal Loans as an Alternative to Predatory Loans
When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.
If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.
A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can have a positive affect on your credit profile — and not doing so can have a negative affect.
Are Smaller, Short-Term Loans the Same as Predatory Loans?
There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.
Some lenders do have minimum amounts they will lend, sometimes $3,000 or $5,000. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.
What is the Smartest Way to Get a $5,000 Loan?
A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.
A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.
Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.
Comparing lenders, however, is the smartest thing you can do when you’re looking for a loan.
The Takeaway
There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan in a short amount of time.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Don’t Fall For These 10 Common Credit Card Scams
Credit card fraud added up to $246 million last year, rising 12% from the prior year. As scammers come up with new ways to get sensitive credit card information and prey upon consumers, it can be a smart move to acquaint yourself with tactics they commonly use, from phishing scams to credit card reader scams to threats of arrest.
Read on to learn about 10 of the most popular techniques and find out what to do if you do end up getting scammed.
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A credit card scam is when an unauthorized individual uses your credit card to make fraudulent purchases or steal money from the account. While some credit card scams will take your credit card information right out from under you, others use strategies to entice you to hand over your information.
Given what a credit card is and how easy they are to use, it can be easy for a scammer to rack up debt under the cardholder’s name.
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Becoming familiar with the top credit card scams can increase your awareness and help you better protect your identity from fraud. Here are some of the most common credit card scams to look out for. (As you’ll see, some can involve debit cards as well.)
1. Overcharge Scams
With an overcharge scam, you’ll receive an email, call, or text stating that a retailer or merchant overcharged your card. The scammer will request your personal information to complete a refund for the overcharge. They will then use this information to gain access to your credit card.
Here’s how these scams can work:
- Usually, the scammer identifies a product or service that you already use, so it may not seem as suspicious when they request this information. But, the fraudster may also use a standard service that many people use, such as Netflix or Spotify, so that it won’t raise red flags.
- While it’s always good to scrutinize your incoming calls, it’s especially important to do so when you receive a call from an unidentified number, though scammers are getting more sophisticated at spoofing phone numbers and making it seem as if they are calling from legitimate businesses.
- If you answer, the caller may tell you that you must take immediate action to get a refund, or that it’s your last chance to do so. The urgency should be an immediate sign something is amiss; that’s a common scam warning sign.
- Also, if you do get a call from, say, Netflix saying your account is suspended, it can be wise to hang up and contact the business directly to see if there’s an issue with your account.
- If you receive a suspicious email, compare the email to past emails from the merchant or retailer. Scammers are often good at disguising a false email address, so look carefully for differences in the sender’s address. They may add “pay” or “support” to make the address look legitimate.
- You may also find subtle or major misspellings and incorrect grammar in the email.
The best way to avoid this potential credit card scam is to either hang up the call or exit the email. Again, if the call says it’s from your credit card issuer, you can call them directly to see if this request was legitimate or a scam. You can find your creditor’s number on the back of your credit card or credit card statement.
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One of the most common credit card scams that occurs over the phone is a fraudster calling to tell you that they can reduce your credit card interest rate and potentially save you significant money on interest payments. They will typically state that their company has a relationship with your credit card company; therefore, they can negotiate reduced interest payments.
However, to entice you to act now, they’ll say the offer is only available for a limited time. Then, the scammer will request your credit card information, such as your account number and CVV number on a credit card, for the alleged service.
Legitimate debt relief companies seldomly cold call consumers to get their business. Also, they cannot charge a fee upfront until they reduce your interest rate or settle a portion of your debt. Therefore, this kind of call should set off alarm bells.
If you want to reduce your interest rate, contact your credit company directly. As the cardholder, you have a better chance of reducing your rate than a third-party company with no relationship with the creditor. If you do receive this call, simply ignore it like you would other credit card scams.
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Scammers can use credit card skimmers to lift your credit card information at gas stations. They do so by attaching an external device to the credit card machine at a pump. When you swipe your card, the device can save your information instantly.
So, before you swipe your card, check to see if the credit card reader you’re using at the pump looks the same as all the other ones. If it doesn’t, that can be a tipoff. You also can tug at the reader to see if it easily detaches. Since skimmers are temporary, they’re usually only attached with double-sided tape, making them easy to remove. Don’t insert your card if you can remove the skimmer with little effort. Instead, go to another gas station to get your gas.
Make sure to inform authorities about the skimmers so they can handle it accordingly.
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Prepaid credit cards, also known as prepaid debit cards, allow you to load money onto them and make purchases. When prepaid credit card funds are depleted, you can no longer use them (unlike credit cards, there is no credit card limit for prepaid cards). You can usually purchase prepaid credit cards at retail stores or online.
Scammers use prepaid credit cards in many different ways to take your money. For example, a scammer may call and say you won the lottery. However, to get your winnings, you must pay the taxes. They may tell you that you can do so by loading a prepaid credit card with a certain amount of funds and sending the card number to the caller. After this is done, they promise to send you your winnings — but, in this case, the scammer may take the card money and never be seen again.
If someone is requesting a prepaid credit card, that’s a red flag. It’s best not to proceed with this transaction as it may be a prepaid credit card scam.
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This scam takes place in a hotel room, where the scammer will call up stating they are a hotel employee. They will inform you that there is an issue with your credit card, and you must verify your credit card information. Usually, these calls take place early in the morning or late at night so that you will be thrown off guard.
If this happens to you, it’s best to handle the matter in person. You can hang up and then visit the front desk to ensure your credit information isn’t exposed to the wrong person.
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The objective of this scam is to convince you to give out your personal credit card information to pay off a debt, fine, penalty, or ticket. While arrest scams may seem unrealistic, the scammer relies on scare tactics to try to get the target to hand over their credit card information. They may target seniors with this scam.
Some points to know:
- Usually, the scammer claims they are from a federal agency like the IRS, FBI, or other government agency that suggests there’s a connection to law enforcement.
- Then, they threaten that if this bill, fee, or ticket goes unpaid, you will be arrested, or other legal action will be taken immediately.
- It’s doubtful that actual law enforcement or federal agencies would request sensitive information during a phone call, especially an abrupt one.
- Another sign that this is a scam is that the call may sound like a robot or like it’s pre-recorded.
- The caller may also have a sense of urgency, claiming authorities are on their way to arrest you.
- Even if you do owe outstanding fees, have a ticket, or were a part of some similar activity recently, authorities or federal agencies wouldn’t request payment information over the phone in this manner.
Don’t share any personal information with the caller. Just like with other scams, the best way to address your concerns is to hang up and call the alleged agency directly to get any information straight from the source.
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When nonprofit organizations ask for donations, it may pull at your heartstrings. But scammers can use this strategy to swipe your credit card information right out from under you.
Scammers who use this strategy usually call you pretending to be a part of a nonprofit or other charitable organization. They will then request donations using everyday anecdotes or narratives designed to influence their targets. It’s also common for scammers to use this tactic when a natural disaster strikes or another current event requires aid.
Although it’s common for nonprofits to solicit donations over the phone, you should still be wary when receiving one of these calls. If you want to donate to the organization, jot down information from the caller, such as their phone number and the name of the charity. Then, you can look up the phone number online to determine if it’s already identified as a scam.
If it isn’t, you can visit the IRS’s Tax Exempt Organization Search and CharityNavigator.org to research the organization to determine its legitimacy.
Overall, it’s wise to avoid donating to unsolicited callers. Instead, consider visiting an organization’s actual website to determine the best way to donate.
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Whether you’re connecting to a public WiFi hotspot via your phone or on your computer, scammers can try to access your credit card information when you sign on. In fact, they may prompt you to enter your credit card information to access a particular hotspot. Given how credit cards work, this is very risky. This can mean the scammer gets access to your card’s credentials.
So, when attempting to access the internet in public, be wary if you’re asked to enter your credit card information. Instead, if you’re at a restaurant or retail location, ask an employee to share the establishment’s hotspot or wifi information. Check that the connection is secure. This way, you’ll know you’re not exposing yourself to credit card fraud. But remember, it’s always wise to avoid conducting financial business on public WiFi.
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Like gas pump skimmers, scammers can also use skimmers at ATMs to obtain credit card information.
The only way to identify a skimmer is by checking the scanning device. For example, if the card reader easily detaches, it’s likely a card skimmer. In addition, you can spot other things to identify a skimmer, such as graphics that don’t align or colors on the machine that don’t match the reader. Another clue is if the keypad seems cheap or too thick.
Before entering your card into a reader, investigate for a skimmer. Familiar places skimmers hide are usually in high-traffic areas (a mall or a sports stadium, say) or tourist locations. Don’t use your credit card if you’re unsure whether a skimmer is present or have a feeling something may be off, potentially indicating a credit card reader scam.
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Like the name suggests, a phishing scam involves fraudsters phishing for your personal information. Scammers contact their targets through the phone or over email, posing as an honest company. They then provide fraudulent links or instructions to help them access your personal credit card information.
For example:
- The scammer may impersonate your credit card company (simply saying they are “calling from your bank and there’s a problem”) and state that your account details must be updated due to a compromised card.
- They will request your card information (your credit card number, expiration date, and CVV code) over the phone or email to resolve this issue.
- The scammer may request the answers to your security questions for protection purposes.
Don’t provide any of this information. Even if they suggest this is a sensitive matter and must be addressed immediately, it’s best to hang up, and call your credit card company right away.
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To keep your credit card information safe, here are some steps you can take:
- Select a credit card with 0% liability on unauthorized purchases. The Fair Credit Billing Act (FCBA) limits your financial responsibility for credit card fraud to up to $50. In other words, you will only have to pay $50 if you’re a victim of one of these credit card scams and request a credit card chargeback. However, some credit card companies offer 0% liability as a perk, which means you aren’t responsible for any fraud.
- Keep tabs on your credit card activity. Regularly looking at your credit card activity and checking your credit card balance can help you spot any suspicious activity. If you do notice anything, contact your credit card company right away.
- Request transaction alerts. Usually, credit card companies let you sign up for transaction alerts, such as for balance transfers, large purchases, and international purchases. Using alerts is a great way to monitor your card activity.
- Ensure your information is secure. When making purchases online, over the phone, or in person, ensure your information is secure. For example, only use sites with “https” in the URL when shopping online. Also, avoid using public WiFi where your personal information may be in jeopardy.
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If you’re a victim of a credit card scam, follow these steps:
- First contact your credit card company to let them know about the fraud. Per the Fair Credit Billing Act, you have 60 days after receiving your billing statement to report any fraudulent activity on your card.
- After informing your creditor of the incident, make sure to change your password for your account.
- You may also want to contact the three major credit bureaus: Equifax, Experian, and TransUnion. Request verification of your identity, and ask for a fraud alert to get linked to your report.
- Additionally, if you’re a credit card scam victim, you can contact the Federal Trade Commission (FTC) to report the crime. You can report your incident online or over the phone at 1-877-382-4357 (FTC-HELP).
- If you’ve discovered a fraudulent website, email or another internet scam, report it to the Internet Crime Complaint Center (IC3).
- Unfortunately, not all scams originate in the US; if you believe you’re a victim of an international scam, report it through econsumer.gov.
All reports help consumer protection agencies pinpoint trends and prevent other consumers from falling victim to credit card scams.
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Unfortunately, it can be easy to become a victim of credit card scams. But, if you monitor your account, set fraud alerts, and keep your information confidential, you’ll have a better chance of avoiding getting duped. Pay attention to what kinds of protection your credit card issuer may offer, too.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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