16 May If You Like Payday Lenders, Then You Are Going To Love Finance Companies
By now, most people have become aware of the trap that is the Payday lender:
Their high interest rates! (As high as 643%).
Unfortunately, many desperate consumers in need of money are returning to Finance Companies as an alternative to the Payday lender.
However, the Finance Company, in many respects, is as bad if not worse than a Payday lender.
As a bankruptcy attorney, I often see people only after they have taken out a loan through a Finance Company, usually as a last ditch effort to make ends meet when they are already over extended with credit card debt.
While their interest rates are usually lower than those of a Payday lender, usually comparable to default interest rates on credit cards (28- 32%), Finance Companies generally pressure borrowers to purchase life and disability insurance to either pay off the loan in the event of death or pay the monthly bill in the case of disability.
Frequently, the amounts charged for these types of insurance are much greater than if the borrower had gone to an insurance agent and purchased comparable insurance coverage, and these lender based insurance policies only pay off the amount of the debt. The insurances provided by these lenders are, in effect, nothing more than hidden interest.
In many cases the Finance Company employee will imply that the insurance is necessary to approve the loan and rely on the desperation of the borrower to pressure the borrower into taking the insurance.
Also, a common feature of the Finance Company application is a section requiring the borrower to list all of their personal belongings. Often, this requirement is explained to the borrower as a way for the lender to see that the borrower is stable and will be around the pay the loan. The truth is that the borrower is unwittingly giving a creditor a security interestin all of the personal belongings that the consumer has listed making that creditor a Secured Creditor.
What this means is that the creditor has a right to seize and sell those personal belongings if the loan is not paid. Further, since the debt is a secured debt, the debt follows the consumer into a bankruptcy and cannot be discharged.
While Finance Companies are rarely interested in seizing furniture to satisfy a loan, they have been known to pursue a consumer in bankruptcy for items such as televisions, computers and other electronics as well as jewelery, leaving the consumer with the option of either, reaffirming the debt, surrendering the property or waiting to see if the creditor is bluffing about seizing the property.
Why the interest in electronics and jewelery? Because some Finance Companies are either directly owned by Pawn Shops are have made arrangements with a pawn shop to sell items of property for the lender.
Payday and Finance Company loans are rarely, if ever, a wise solution to financial problems.
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