MELVILLE, Long Island (WABC) -- Many of us are trying to make room on our credit cards and feeling that end of the year pinch, but beware of predatory lenders looking to help you with that debt.
"Predatory loans have the potential to trap you in the cycle of debt," Leslie Tayne said.
Her law group finds debt solutions for businesses and individuals -- ideally before they drown by taking out a bad loan.
"People in vulnerable situations are the ones that fall victims," the author and financial attorney said.
A big mistake desperate borrowers make is letting a lender deposit funds directly into your bank account.
"They're going to ask you for your bank account information," Tayne said. "That's certainly a red flag. You should not provide your bank account information over the phone or because you received a letter in the mail."
Tayne recommends asking for a paper check, and beware of a tempting letter that looks like a check, perforated, which says things like, "Just sign here we'll give you $50,000," or "This check is valid," or "You're pre-approved."
She also warns to be careful of merchant loans, which don't use the term "loan" at all and are deceptive.
"They really get around around the banking laws, especially here in New York," she said. "What they do is they offer you is a loan for your business based on your inventory and future sales."
She showed us an agreement that uses the term "buyer" and "seller" to get $42,000, which is going to cost the merchant $12,600. He gives permission to hit his bank account up daily and also gets clobbered with over $2,000 fees.
Her advisers warn clients to ask a lot of questions up front, and that you want terms in writing on how much it costs and how long you have to pay it back.
"People do get desperate when they need loans," she said. "They need to keep business afloat. They need to keep their households afloat. And they end up getting desperate and sucked into these types of loans."
Also beware of phony loan solicitations. They warn borrowers if they got an offer to lend money from a cold call, or a letter that comes with a check made out to you for the exact amount of debt you're in, it can be the sign of a loan you'll never be able to afford.
Next, watch out for loans that charge an upfront fee, it's always the sign of a scam Don't pay it.
And a sure sign of a scam is a lender that claims you're approved without a credit check, or regardless of bad credit. That's a fantasy. Remember, no legitimate lender will approve any loan without doing a hard inquiry on your credit history first.
Shop around and do some research. See what a lender's rating is and whether they're licensed in your state. Explore alternatives, which means before you look for a loan, try to negotiate with lenders and even consolidate credit. You could also explore alternatives like non profits or credit unions.
Tayne says other tips-off to ripoffs are not disclosing "prepayment penalties," where you get hit with a fee if you want to pay your loan off sooner than the term.
There's also Loan Flipping, which is being encourage to refinance an existing loan into a larger one a higher rate with additional fees, and asset-based lending, which is when borrowers are convinced to borrow more that they should by putting their house, jewelry, television and other possessions up as assets rather than on income or ability to actually repay.
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7 On Your Side: Tips to avoiding predatory lenders