Beware of Predatory Lenders

Have you ever listened to a commercial and heard the terms “fast cash” or “guaranteed approval”? They may have not meant anything to you at the time, but if you ever find yourself in a situation where you need some extra money fast, those commercials might start appealing to you. If your car breaks down or you are short on your rent payment and you have no emergency funds, going to a payday lender or a pawnbroker may seem like your only option.

According to Debt.org, predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford. Predatory lending benefits the lender and ignores or hinders the borrower’s ability to repay the debt. These lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms or finances.

To be able to recognize when you are entering a situation with a predatory lender you must be familiar with the different titles one may use. The following are common examples of predatory lenders:

• Pawnbrokers are individuals or businesses that offer secured loans to people, with items of personal property used as collateral.
• Payday lenders offer payday loans (also called payday advances, salary loans, payroll loans, small dollar loans, short-term loans or cash advance loans). These are small short-term unsecured loans, regardless of whether repayment is linked to a borrower’s payday.
• Prepaid debit cards are typically not considered predatory; however, some of these cards have been criticized for their higher-than-average fees (such as a flat fee added onto every purchase made with the card).
• Loan sharks are individuals or groups who offer loans at extremely high interest rates. The term usually refers to illegal activity but may also refer to predatory lending activities like payday or title loans. Loan sharks sometimes enforce repayment by blackmail or threats of violence.

If you are facing debt problems, you may feel that these types of lenders are your only option. Even in a difficult situation, there are still other options. The following are different alternatives to consider when you are faced with financial hardship:

• A payment plan with creditors is the best alternative to payday loans is to deal directly with your debt. Working out an extended payment plan with your creditors may allow you to pay off your unpaid bills over a longer amount of time.
• An advance from your employer may be an ideal solution for you in an emergency. Since this option not a loan, there will be no interest.
• Credit unions typically offer affordable small short-term loans to members. Unlike payday loans, these loans give you a real chance to repay with longer payback periods, lower interest rates, and instalment payments.
• There are numerous consumer credit counselling agencies throughout Canada that can help you work out a debt repayment plan with creditors and develop a budget. Credit Counselling Canada is a nonprofit organization that can help you find a reputable certified consumer credit counsellor in your area.
• Many community organizations and faith-based groups provide emergency assistance, either directly or through social services programs for weather-related emergencies.
• Credit card cash advances, which are usually offered at an annual percentage rate (APR) of 30% or less, are much cheaper than getting a payday loan. Some credit card companies specialize in consumers with financial problems or poor credit histories.

Ultimately, you should know that you are in control, even if you have financial difficulties. There are plenty of alternatives to avoid high-cost borrowing from predatory lenders. Take time to explore your options.