Other Consumer Loans Overview
While the availability of credit with reasonable terms is essential to the health of our economy, some loans are designed not to provide the borrower with an investment of capital, but to strip cash through unfair practices or extremely high fees. These products are often aimed at those who have fewer resources to start with and end up undermining their ability to recover from a shortfall or build a strong financial foundation.
Title loans are similar to payday loans but require the title to the borrower’s vehicle as security for the loan. If the borrower can’t pay off the loan on time, they risk losing their means of transportation, a strong incentive for the borrower to pay another interest payment to keep from defaulting. Refund anticipation loans are made by paid tax preparers, who charge high fees for very short-term, no-risk loans based on the borrower’s tax refund.
Consumers who rely on a car dealer to finance their loan are vulnerable to a litany of predatory practices. Without fairness and transparency in the process of buying and financing a vehicle, prospective customers are subject to manipulation that can add thousands of dollars to the cost. Some of the most common auto financing abuses are dealer kickbacks, loan packing, and binding mandatory arbitration.
- Road to Nowhere: Car Dealer Interest Rate Markups Lead to Higher Interest Rates, Not Discounts