RALEIGH, NC (WNCN) — A new kind of lending is taking the country by storm.
This is called online installment loan.
In 5 years it has gone from an almost unknown industry to one now worth tens of billions, but financial experts warn that there is a dark and dangerous side to these loans for the borrower.
When most people borrow money, they use credit cards or go to a bank to get the money they need.
“Nearly 34% of Americans took out loans last year,” says Alyssa Parker of BBB Eastern North Carolina.
Last year, this represented 83.5 million people who took out a loan.
But, some people with low credit scores are borrowing from other sources – the so-called subprime market – and it’s growing.
The largest segment of this subprime mortgage market is in so-called online installment loans.
Here in North Carolina alone, Pew Charitable Trusts says there are 229 online installment loan companies operating here.
The organization analyzed the industry and concluded that outdated policies and laws are putting online installment loan borrowers across the United States at risk.
Online installment loans are an outgrowth of payday loan companies, which are illegal in North Carolina and a number of other states.
An online installment loan usually has higher interest rates, which could make it a predator.
“Predatory lending is an unfair practice in which lenders try to take advantage of consumers by giving them loans they can’t afford or loans they can’t successfully repay,” Parker explained. .
She says scam tracker BBB recorded 1,528 complaints about advance loan fees in 2018.
Red flags to watch out for include:
- Vague or unclear fees charged before you receive your money
- Lump sum payments (which require a large lump sum at the end of the loan)
- Require unnecessary insurance that lasts for years
“A lot of times the insurance that you have for that loan may be something that you still pay off long after the loan is paid off,” Parker said.
Those who took out subprime loans are now estimated to collectively owe $50 billion, and the industry is largely unregulated in this country.
But that doesn’t mean there isn’t oversight. Here in North Carolina, the attorney general’s office tells me that it’s illegal for businesses to charge interest rates above 30%.
The Attorney General’s office has investigated complaints and taken action against several lenders that provide illegal online installment loans.
They say enforcement action has recently been taken against Approved Financial, AutoLoans and Western Sky Financial.
So, before you sign up for an online installment loan, be careful.
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 these tips on dealing with lenders:
· Work with the lender. You may want to make payment arrangements with the lender, such as offering to repay the principal amount of the loan.
· Cancel bank drafts. You can tell your bank that you want to cancel any electronic draft (called ACH) that allows the payday lender to debit your bank account. Notify your bank within four days of 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 withdraw funds from your account, you may need to ask the bank for a permanent (“hard”) closure of the account. (But be sure to open a new account at another bank before closing the old account. It may be more difficult to open a new account once the old one is closed, especially if the lender has reached the old one. account with several overdrafts). .)
· Stop debt collectors. You can request that the lender’s or a collection agent’s efforts to collect the loan stop. If the lender or collection agency is harassing you, threatening 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 in NC.
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