Abusive lending practices are everywhere and can affect all consumers, no matter who you are or what your financial situation is. Abusive lenders are like predators. They use people looking for a loan. Their specialty is obviously looking for desperate financial situations, but it is important that all consumers be informed of the lenders with whom they choose to do business.
What is an abusive loan?
Abusive loans are so named when a lender imposes illegal or unreasonable loans on its borrowers. Abusive lenders may also attempt to oblige a borrower to accept these unreasonable terms or to lend a loan that the lender can not realistically afford. These lenders usually benefit people who are desperate for immediate money, have minimal financial knowledge, or live in low-income areas. Abusive lenders think only of themselves and their profit margins.
How to protect yourself from abusive lenders
The best way to protect yourself from abusive lenders is to be as informed as possible about your rights as a borrower as well as the common practices of these types of lenders. Abusive loans are not new. So we have a very good idea of what to watch for and how to defend ourselves against these practices. Here are the common practices of abusive lenders.
Unsolicited loan offers
Legal lenders do not usually ask consumers by email, phone or online if they want a loan, especially if they have never done business together before.
Promise of Guaranteed Approval
If a lender promises you to approve the loan you want without asking for a risk assessment (credit inquiry, income verification etc.), this is certainly too good to be true. Even lenders who work with borrowers with credit constraints need information about the financial status of all potential borrowers. No one can guarantee the approval of a loan.
Insistent loan officers
If the agent you are dealing with seems to be impatient to get you to the point of no return, there could be a questionable motive behind his eagerness.
Abusive lenders often try to take into account the additional costs of their loans in the form of fees and they often do not specify that they charge these fees. Always read your contract before signing it and make sure you understand everything you do not understand or that you think is unfair.
Documents with empty spaces
If a document you are supposed to sign contains blank spaces, do not sign it. An abusive lender may add additional information with having your signature. This could lead to serious financial problems.
Manage an abusive loan debt
Each year, hundreds of thousands of Canadians are victims of abusive lending practices. It is an unfortunate fact but there are many ways to deal with a debt arising from an abusive loan.
Before making decisions about stopping your payments, taking another loan, or deleting your credit card, you should speak with a reputable and approved credit advisor. He can analyze your financial situation and propose a plan as well as advise you in the steps to follow to deal with your debt. For some, a credit counselor can be all you need to manage your debt. For others, a debt relief option may be more appropriate.
Debt consolidation loan
A debt consolidation loan is a great option for many consumers, especially those who have a lot of high interest debt from payday loans (one of the worst type of abusive loan). A debt consolidation loan will allow you to repay all your debts so that you will only have to make payments on a new loan. Your goal should be to get a new loan with a lower interest rate and easier to manage so you can save money on interest charges while paying off your debt quickly.
Debt Management Program
A debt management program, also called debt consolidation program is often best suited for consumers who can not be approved for an affordable debt consolidation loan. When you join a debt management program, you will work with a qualified professional who will guide you through the process and act as an intermediary on your behalf with your creditors. You will meet a professional who will evaluate your finances, create a plan and provide advice on how to best manage your debts in the future. Here’s how a debt management program works:
- You will have to repay your debts in full
- You may qualify for lower interest rates (remember that your creditors will oppose it)
- If your financial advisor is able to negotiate lower interest rates, you will save on interest charges.
- You will make an affordable monthly payment through your debt management program which will then be distributed to your creditors.
- A debt management program will not reduce the amount you owe, but it will help you repay all of your outstanding debts in a more manageable time.
If you can not afford to repay your debts in full, debt settlement may be the best option for you. Whether you choose to contact your lenders and creditors yourself or hire a debt settlement company, your main goal is to have the total amount of money you reduce to an easier amount to manage. Once you have paid the agreed amount to each of your creditors, usually in lump sum payments, your debts will be considered as paid in full.
A consumer proposal is a slightly less severe option than bankruptcy and should always be considered before the bankruptcy. It is similar to a bankruptcy in that you will be working with a licensed insolvency trustee. This one will create a proposal for your lenders and creditors. If you creditors accept the proposal (they are not legally required to do so), you and your creditors will have to respect the details of the proposal. Generally, the goal is to have your interest rates frozen and the total amount of debt you owe reduced. You may need to make a large payment or installment payments. Again, this is based on the number of creditors who accepted the proposal. Only unsecured debt can be included in a consumer proposal and you must owe less than $ 250,000
If you have considered filing a consumer proposal and it was not the right option for you, you may have to file a bankruptcy. This is a legal process and therefore you will need to work with a licensed insolvency trustee to complete the process.
Unfortunately, even if bankruptcy seems to be the right solution for you, it will undeniably have a negative effect on your credit rating and will appear on your credit report for 7 years.
To come back to bad loans, it is important that you first seek the help of a professional, and secondly, that you make all decisions based solely on your financial situation. Choosing the right option for debt relief is a serious decision, but once you have found the best option, you will pay off your debts and have a guarantee of a better financial future.