RALEIGH, N.C. (WNCN) – A new type of loan is taking the country by storm.
It’s called the online installment loan.
In 5 years, it’s gone from almost unheard of to an industry that’s now worth tens of billions, but financial experts are warning there is a dark, and dangerous side to those loans for the borrower.
When most people borrow money, they use credit cards or go to a bank to get the cash they need.
“Nearly 34 per cent of Americans took out loans last year,” says Alyssa Parker of the BBB of Eastern North Carolina.
Last year, that amounted to 83.5 million people who took out a loan.
But, some folks with low credit scores borrow from other sources—the so-called sub-prime market—and it’s growing.
The biggest segment of that sub-prime market are in something called online installment loans.
Here in North Carolina alone, Pew Charitable Trusts says there are 229 on-line installment loan companies operating here.
The organization analyzed the industry and concluded outdated policies and laws are putting online installment loan borrowers at risk all over the United States.
Online installment loans are an outgrowth of payday loans companies, which are illegal in North Carolina and a number of other states.
An online installment loan generally has higher interest rates, which could make them predatory.
“Predatory lending is an unfair practice in which loan companies try and take advantage of consumers—taking out loans they can’t afford or loans that don’t set them up for success in paying them back,” explained Parker.
She says the BBB scam tracker logged 1,528 complaints about advance loan fees in 2018.
Red flags that you need to watch out for include:
- Vague or unclear fees charged before you get your money
- Balloon payments (which require a large lump-sum payoff amount at the end of the loan)
- Requiring unnecessary insurance that continues for years
“Oftentimes, the insurance you’ve signed up for attached to this loan may be something you’re still paying off long after the loan is paid off,” said Parker.
It’s estimated right now that those who’ve taken out sub-prime loans collectively owe 50 billion dollars, and the industry is largely unregulated in this country.
But that doesn’t mean there’s no oversight. Here in North Carolina, the attorney general’s office tells me that it’s illegal for companies to charge interest rates in excess of 30 percent.
The attorney general’s office has investigated complaints and has taken action against several lenders making illegal online installment loans.
They say that enforcement action has recently been taken against Approved Financial, AutoLoans, and Western Sky Financial.
So, before you sign up for an online installment loan—tread carefully.
Do your research. Don’t sign anything with blank lines and ask lots of questions.
Also, in this state, if you sign a loan document in your home, you have 3-days to opt out if you change your mind.
The attorney general’s office also offers this advice about dealing with lenders:
· Work with the lender. You may wish to make payment arrangements with the lender, such as offering to repay the principal amount of the loan.
· Cancel bank drafts. You can notify your bank that you wish to cancel any electronic draft (known as an ACH) that lets the payday lender debit your bank account. Notify your bank within four days prior to the draft date and also notify the lender in writing or by email that you have revoked their authorization to withdraw funds from your bank account.
· Close the account. If the lender continues to try to draft funds from your account you may have to ask the bank for a permanent (“hard”) closing of the account. (But be sure to open a new account at a different bank before you close the old account. You may find it more difficult to open a new account once your old one is closed, especially if the lender has hit the old account with multiple overdrafts.)
· Stop debt collectors. You can ask that efforts by the lender or a debt collector to collect on the loan stop. If the lender or collection agency harasses you, threatens to arrest you or garnish your wages, file a complaint with Attorney General Josh Stein’s office at 1-877-5-NO-SCAM toll free within NC.
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