The Lendee Awards!
It’s awards season! This time of year, hardly a Sunday night can pass without some kind of televised celebrity party (complete with gold statues!). We thought we’d give it a shot ourselves this year and hand out some awards of our own. After all, lending is such an important part of so many lives, why shouldn’t it be given the same attention that sound mixers and supporting actors receive?
Unlike the Oscars or the Golden Globes, most of these winners aren’t famous, and they prefer it that way. If enough people knew about them, they might not be able to continue some of their predatory practices.
Of course, there are some positive awards to give out, too. [Spoiler alert: We saved those for ourselves.] Enjoy!
MOST EXPLOITATIVE LENDER.
There were a lot of great nominees in this category. After all, the personal lending industry is, unfortunately, filled with some real heavy hitters when it comes to draining your bank account. But at the end of the day, it couldn’t be anyone else.
And the winner is… Payday Lenders!
Payday lenders target borrowers with bad credit who need a quick loan and feel like they have no other options. They offer high-interest rates—averaging nearly 400% APR—and short payment terms that can make the loan extremely difficult to pay off on time. This means that most borrowers will have to “rollover,” or pay a fee to extend their loan.1 In fact, one study by the Consumer Finance Protection Bureau found that the average payday borrower will take out ten loans a year.2
Payday lenders have sucked hundreds of millions of dollars out of low-income communities, easily winning them this year’s “Most Exploitative” award. Learn more about avoiding these lenders in the eBook How to Protect Yourself from Payday Loans and Predatory Lenders.
MOST BLATANT SCAM.
People in financial trouble tend to be really desperate, which can make them ideal targets for scammers. That means there’s some really intense competition to win this award. Still, you’d have a tough time finding a scam more blatant than this year’s “winner.”
And the winner is… Tax Relief Companies!
Tax relief companies will often claim to have “secret knowledge” or “special tax solutions” that other companies don’t have access to. They claim they can leverage this knowledge to save you money. This is, to put it technically, a heap of nonsense. Michael Raanan of the Landmark Tax Group (@LandmarkTaxGrp) warns that tax relief companies are only worth avoiding.
“In general, the IRS looks at only these two sources when determining if tax relief, such as a payment plan or penalty abatement, can be granted,” Ranaan also warns against any companies that say they can “guarantee” a certain result, as it’ll be up to the IRS to determine what sort of relief you may have access to.3
Raanan, a former IRS agent, has years of experience dealing with companies like this. Many of the companies he encountered would allow important tax deadlines to pass without informing their clients, except to ask for more money once those missed deadlines led to additional penalties.
Christopher Welga, VP of Enterprise Risk for the Teachers Federal Credit Union (@TFCU), offers some additional red flags. He says you shouldn’t trust “any firm that contacts you through an unsolicited/cold call, any firm that asks for full payment upfront, or any that uses high-pressure tactics to get you to use their services.”
Even worse, some of these companies will actually create fake review sites to try and convince you they’re more credible than they are. With such deceptive practices, they definitely deserve this award!
MOST DECEPTIVE PRACTICE.
There are a lot of clever tricks lenders will use to try and fool you into taking out a dangerous loan you can’t pay back. But this award singles out a special, simple, clever ruse that deserves an award for its effectiveness.
And the winner is… Lenders Who Trick Customers into Higher APR Loans!
By only talking about a loan in terms of its simple interest rate, a devious lender can make a loan seem cheaper than it is. Instead, look for lenders who are willing to give you the annual percentage rate, or APR, which tells you the full cost you’ll pay per year including total interest and fees.
If you want a good loan, listen to lenders who use APR and are willing to work with you to find a payment plan that meets your needs.
SHORTEST PAYMENT TERMS
It’s not easy to sell a borrower on a short-term loan. The shorter the term, the more difficult it can be to repay. Lenders offering short, difficult-to-repay terms don’t deserve a “shout out”—they deserve to be called out.
And the winner is… Payday Lenders AGAIN!
Payday lenders “win” their second award for the night, and no one can deny they deserve it. They require you to pay back the entire loan plus interest within an average two-week term. The median payday loan gives you only two weeks to pay it back in full, so your paycheck can be eaten up as soon as you get it. You can read more in the article The High Cost of Payday Loans.
In theory, a short payment term sounds nice. Wouldn’t you rather have it all wrapped up in two weeks? Unfortunately, having to continually roll over your loans means that the average borrower is in debt nearly half of the year. And without the structured payments of a good installment loan, they might not be able to afford much else during that time.3
BEST PAYMENT OPTIONS.
And the winner is… OppLoans’ Amortized Installment Loans!
Many personal loans are structured as installment loans, and they’re likely your best option if you need to borrow money. A good loan company will help you figure out a payment plan that works with your budget. Ideally, each payment should be amortizing, which means that you’ll be tackling a portion of the interest you owe in addition to the principal with each payment.
Not all installment loans will offer good payment terms, but the ones that do are truly worthy winners of the Lendee statuette.
MOST IMPROVED CREDIT.
Although you can qualify for a loan with a poor credit score, the best lenders want to make sure you have the chance to get that number up. That’s why credit-building lenders, like Opploans, report your payments to credit bureaus, so you can improve your credit as you’re paying back your loan.
And the winner is… You!
There you have it! Our first Lendee Awards are distributed, the after-parties have started, and those snubbed in thank-you speeches have begun plotting their revenge.
If you had a good year in borrowing, then congrats! You took out safe installment loans you could afford to repay and that helped you build your credit in the meantime. If you fell victim to a predatory lender this year, then it probably still stings. But don’t worry, with OppLoans, 2017 can be your comeback year!
- “What is a payday loan?” ConsumerFinance.gov. Accessed on February 1, 2017 at http://www.consumerfinance.gov/askcfpb/1567/what-payday-loan.html.
- “Payday Loans and Deposit Advance Products.” ConsumerFinance.gov. Accessed on February 1, 2017 at http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.
- Morran, Chris. “The Average Payday Loan Borrower Spends More Than Half The Year In Debt to Lender?” Consumerist.com. Accessed on February 1, 2017 at https://consumerist.com/2013/04/26/the-average-payday-loan-borrower-spends-more-than-half-the-year-in-debt-to-lender/.
About the Contributors:
Michael Raanan, MBA, EA is a former IRS Agent and current owner of LandmarkTaxGroup.com, a professional tax relief firm that helps taxpayers nationwide resolve their IRS tax problems.
Christopher Welga, an expert in technology, enterprise security and risk management, has served the security and technology needs of Teachers Federal Credit Union for the past 17 years. At TFCU, Chris is currently the Vice President of Enterprise Risk Management, overseeing the credit union’s security, fraud prevention, business continuity and disaster recovery, compliance regulation and safety divisions, including cybersecurity, protecting credit union members from outside threats.
The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.