6/11/2012 7:25 PM ET

Beware the predatory-lending trap

(Continued ...)

Ask the right questions before signing

While your questions will depend on the loan product purchased, Wolf suggests these basic questions that you should ask the lender before you sign:

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What is the actual rate of interest when all loan origination fees and prepaid interest is included?
What is the payoff period for the loan? (Six months, 10 years, 30 years, etc.)
When will the loan rate go up or reset?
When the loan resets, what will the payment be?
Are there any penalties for late or delinquent payments?
Do late payments trigger a higher loan rate for the remaining period of the loan?
Are there any refinance restrictions and fees?

Not only should you grill the lender, but you should also ask yourself some hard questions, says Alexander.

Can I afford to pay back this loan?
Is the length of time for the loan reasonable? For example, a 10-year car loan might not be reasonable.
Are my total loan payments more than 36% of my gross monthly pay? They shouldn't be.

What to do if you are caught in a predatory loan

If you realize that the loan form you have signed is predatory, there are some steps you can take.

The Obama administration's newly established Consumer Financial Protection Bureau is the place to launch a complaint about any predatory loans except those from auto dealerships, which are exempt from the bureau's authority.

"People should also complain to their state attorney general," Day says. If you suspect fraud, you may want to consult with a legal aid attorney.

"As (borrowers) become aware that they can take action against mortgage fraud and predatory lending, and policymakers, consumer advocates and civil-rights leaders take more action against the predators, more people will be protected from its burden," Wolf says.

However, launching a complaint may not immediately ease your problem, such as a high monthly loan payment with unfavorable terms or an exorbitant interest rate.

For that, there is only one solution: "Do whatever you can to pay off the loan and get out from under it," Day says.

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Jun 26, 2012 2:46PM

Payday loans are evil. They seduce borrowers by telling them "quick cash now" but extract a huge amount of money from them in the form of fees and interest rates. Some payday loans have rates as high as 2000%! Instead of payday loans, post-bankruptcy borrowers should look into personal loans from lenders such as Springleaf or check out The Bankruptcy Shop for more alternatives to payday loans.

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BankruptcyShop

Jul 19, 2012 11:23AM

Predatory lending is a practice that should be made illegal. The problem is that there are many decent, hard-working people who happen to have poor credit for whatever reason. They, like everyone else, need a loan from time to time. It's their credit that is inhibiting them from accessing the cash they need. In many cases, they are forced to turn to payday loans as they believe those are the only types of loans they will qualify for. In reality, there are reputable lenders who will lend to borrowers with poor credit even post bankruptcy. If you are a consumer with poor credit or a discharged bankruptcy, you do NOT have to turn to a payday lender to get a loan. You also do NOT have to have ANY collateral either. This is NOT to say everyone will get approved. Actually, having a bankruptcy on your credit report increases your chances of being approved for a personal loan as banks know you can't file again for 7-10 years. Also, you need to have steady employment.

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fruity44

Jul 9, 2012 2:11PM

To Kevin P. That is a good idea but the problem is to actually get a decent bank or place to loan to you. Most of the time if not all the time they wont, especially if you have a bad credit score, and if you have no collateral its impossible to get a loan at all

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