RALEIGH, NC (WNCN) – A new kind of loan is taking the country by storm.
This is called the online installment loan.
In 5 years it has grown from an almost unknown industry to an industry 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.
“Almost 34 percent 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 people with poor credit scores borrow from other sources – the market says subprime – and it’s increasing.
The biggest segment of this subprime market is in what is called online installment loans.
In North Carolina alone, Pew Charitable Trusts says there are 229 online installment loan companies operating here.
The organization analyzed the industry and concluded outdated policies and laws put online installment loan borrowers at risk across the United States.
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 them predatory.
“Predatory loans are an unfair practice in which loan companies try to take advantage of consumers by taking out loans they cannot afford or loans that do not allow them to successfully repay them,” Parker explained.
She says the BBB scam tracker connected 1,528 complaints about early loan fees in 2018.
Red flags you should watch out for include:
- Inaccurate or unclear fees charged before you receive your money
- Lump sum payments (which require a large lump sum at the end of the loan)
- Demand unnecessary insurance that lasts for years
“Often times, the insurance that you have taken out attached to that loan can be something that you still pay off long after the loan is paid off,” Parker said.
It is currently estimated that those who have taken on subprime loans collectively owe $ 50 billion, and the industry is largely unregulated in this country.
But that doesn’t mean there is no oversight. Here in North Carolina, the attorney general’s office tells me that it’s illegal for companies to charge interest rates above 30%.
The attorney general’s office investigated the complaints and took action against several lenders making 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 installment loan online, 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 at home, you have 3 days to unsubscribe if you change your mind.
The Attorney General’s office also offers these tips for dealing with lenders:
· Work with the lender. You may want to make payment arrangements with the lender, such as offering to repay the principal on 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 project 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 after the old one is closed, especially if the lender touched the old one. account with several overdrafts.)
· Stop the debt collectors. You can request that the lender’s or a debt collector’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 in North Carolina toll-free. .
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