What is a Predatory Loan?

Loansolutions is taking a stand
by making sure it only connects borrowers to legitimate loans from reputable banks and lenders.

Favors the LENDERS

Also known as 5-6. ATM or payday loan, fast or quick cash loan, it comes with exorbitant interest rates, fees, short-term payment periods and other terms that borrowers cannot afford.

Sets you to FAIL

More than ignoring your ability to repay, most predatory loans are set to prevent you from paying back your loan fully and on time. This allows predatory lenders or loansharks to make more money through multiple interest and penalty fees.

It has MANY faces

These predatory loans come in many forms such as payday or 5-6 loans. They target people who need immediate money, have a bad credit history, have lost their job, or are not armed with financial knowledge.

Loansolutions is taking a stand
by making sure it only connects borrowers to legitimate loans from reputable banks and lenders.

More than 10% of Adult Filipinos get loans from informal lenders (vs. world average of 5%)

The proportion of legitimate financial institutions lending to micro, small, and medium enterprise (MSMEs) dropped from 20% to 1% in 2009, giving way to more informal business loans.

Laws That Pertain To Lending

The Lending Company Regulation Act of 2007 (RA 9474) states that a lending company not regulated by law or Banko Sentral ng Pilipinas (including banks and pawnshops) may only be a corporation and must be granted authority to operate by the Securities and Exchange Commission.

The Truth in Lending Act (RA 3765) covers any creditor, and requires that information regarding the principal amount and interest be given to the borrower in terms of a simple annual percentage and in pesos through “a clear statement in writing.”

Reasons that informal loans flourish in the country

Lack of acceptable collaterral

Delayed loan release

Lack of knowledge on accessing formal or bank financing

Borrower’s lack of a borrowing record or credit history

The numerous documentary requirements of formal institutions

Common Predatory Lending Practices

Inflated Fees and Charges

We provide qualified applications that match your requirement of a perfect customer for a higher closing rate.

False Disclosure

The lender hides the true costs and risks of the loan, or changes the loan terms without informing the borrower.

Loan Packing

Unnecessary products like credit insurance are added into the cost of a loan without the borrower’s informed consent.

Prepayment Penalties

Watch out for loan agreements that penalize you for paying off your debt early.

Loan Flipping

Similar to loan churning, the lender encourages a borrower to refinance an existing loan through a second loan. The difference is, the new loan is larger with a higher interest rate and fees.

Negative Amortization

This is a scheme where your set monthly payment is not enough to even cover your interest payment, which gets added to your amount payable. You end up paying much more that your original loan.

Balloon Mortgages

The lender convinces the borrower to refinance a mortgage through a loan with low initial payments but balloon or large payments later in term. When the borrower cannot pay the balloon amount, the lender offers another loan at a much higher interest rate.

Reverse Redlining

The lenders targets high-risk or remote neighborhoods that are not catered to by banks and traditional lenders, offering high-interest rates across the board regardless of individual’s credit history or capacity to pay.

Balloon Mortgages

The lender convinces the borrower to refinance a mortgage through a loan with low initial payments but balloon or large payments later in term. When the borrower cannot pay the balloon amount, the lender offers another loan at a much higher interest rate.

Reverse Redlining

The lenders targets high-risk or remote neighborhoods that are not catered to by banks and traditional lenders, offering high-interest rates across the board regardless of individual’s credit history or capacity to pay.

How to know if you’re dealing with a predatory or illegal lender

Unsolicited Loan Offers

Beware of loan offers through photocopied flyers left on your car hood, as well as door-to-door solicitations and other off-putting marketing tactics. Reputable lenders typically don’t operate in this manner.

Unregistered Lenders

Steer clear of informal lenders. Make sure any lender you work with is licensed and registered with the Securities and Exchange Commission (SEC).

Promises Are Too Good To Be True

If a lender promises to grant your loan application regardless of your credit history or capacity to pay, take it as a big red flag.

Being Rushed To Sign Documents

Don’t let anyone pressure you into a agreement that you don’t fully understand. Be especially wary of blank spaces. Read loan contracts carefully, and have them checked by a lawyer or a trusted, finance-savvy friend whenever possible.

High Interest Rates And Fees

Be careful with lenders that charge high interest rates and fees compared to banks and credible lending companies. Don’t deal with lenders that encourage you to accept terms you cannot afford.

How To Find A Legitimate Lender

Ask Your Family And Friends For Recommendation

If you stop treating the subject as taboo, you will benefit from the personal experiences and advice of those you trust.

Avail Of Loans From Banks Whenever Possible

They are regulated by the Banko Sentral ng Pilipinas (BSP) and operate within the rule of law, especially laws on anti-usury or predatory lending.

If you have to resort to a financing company, make sure that they are registered with the Securities and Exchange Commission (SEC)

It is harder for a licensed and registered company to break the laws compared to informal or illegitimate lenders.

Research

Read on news and consumer reviews about a potential lender. Loansolutions, the Philippines’ #1 online loans market place, can help by giving information and connecting you only to legitimate and credible banks and lenders.

Don’t be afraid to contact banks and other legitimate lenders.
Don’t fall into these “debt” traps, the power is in your hands.

Help us! Join the fight against payday loans, loan sharks, 5-6 and other forms of predatory lending.

Every social share and website link helps prevent another Filipino fall into the predatory lending trap.


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