North Carolina Finance Company Loan? Don’t Re-Fi; Discharge!

12 Aug North Carolina Finance Company Loan? Don’t Re-Fi; Discharge!

As of July 1, 2013, North Carolina allowed finance companies regulated under the Consumer Finance Act to charge higher interest rates and to make bigger loans than ever before. Now, the maximum loan that can be made at these “hurt me” rates has been raised from $10,000 to $15,000. Also, the maximum rate of interest has been changed so that loans of up to $4,000 can be charged 30% interest; for loans for the next $4,000, up to 24% interest can be charged; and for the next $2,000 up to $10,000 total loan, the interest is limited to 18%. If you obtain a loan over $10,000 but not exceeding $15,000, then the maximum rate of interest is 18%.

What does this mean for you? This means that if you are turning to these types of lenders, the cost of obtaining a loan from these guys just got significantly more expensive. Likewise, if you already have loan with a finance company in North Carolina and you are struggling to make those payments, you should think long and hard about re-financing the loan in order for them to “bring you current.” It is a common practice for finance companies to engage in “loan flipping” that create little economic benefit to the consumer or trap the consumer in an endless cycle of debt. In fact, the North Carolina Commissioner of Banks found that in 2011, over 60% of the loans made by consumer finance companies were made to existing customers with existing loans (that is, loan flipping).

As a bankruptcy attorney, I see folks that have re-financed their loans with finance companies several times. When asked about it, the consumer often says that the finance company was re-financing the loan so that I could “get current” with them. When I look at the paperwork, I will see a loan in the amount significantly greater than the previous loan with a new round of “insurance products” such as credit life and the sort all at significant cost to the borrower. Then, at the bottom, “cash t o borrower” $400 but the borrower has obligated himself for another $4-5,000 dollar loan–now at much higher rates!

So, what to do? If you are struggling with your payments and you are thinking a loan will help get you out of debt (a loan will not get you out of debt); or you are responding to the finance company’s call to “get current” with a new loan, think bankruptcy. Instead of re-financing that loan, we could actually discharge the loan and you may not be legally responsible to pay that loan back at all! Besides, it will not hurt to talk with a professional about your finances who is looking after your interests instead of a finance company’s interest.

If you are trapped in the finance company cycle,

Don’t re-fi; discharge!


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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.
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