It can be hard to navigate the world of lending as some lenders engage in predatory practices that are meant to sway consumers into a high-cost loan. Some lenders even use complex jargon and deceptive practices to confuse consumers. Read on to learn about some of the tricks that lenders use in their advertisements to mislead consumers.
Many lenders will advertise attractive “low” interest rates, but they fail to mention the loan’s high annual percentage rate (APR).
The APR is the interest rate plus fees associated with the loan. While an interest rate can be low, including fees can mean a sky-high APR.
Lenders can seriously mislead borrowers by advertising “low” interest rates. Payday loan lenders are particularly bad for being deceptive. For example, if it costs $115 to borrow $500 for 14 days, the total payback amount is $615, and the APR is 599.64%.
Similarly, if you get a 3-year $10,000 personal loan with an interest rate of 3.5% with fees adding up to $2000, your interest rate would turn into an APR of 9.00%.
Some lenders advertise loans that don’t need documents for you to be approved. This claim usually means that all the information you provide will be paperless.
Lenders can check your financial information with programs like Instant Bank Verification (IBV), which pulls your transactional data and bank account data from more than 20,000 financial institutions around the world. It’s basically a program that allows consumers to apply for a loan 100% online, you won’t have to gather any documents or send your lender any attachments.
Just because a lender advertises that you’ll get approved for a loan the same day you apply, that doesn’t mean you’ll get your money the same day. Funding and approval are two different aspects of the borrowing process. Funding usually comes after the approval and both have different time frames. While you may get an approval the same day, you may not get your funds the same day.
You’ll usually need to meet some conditions set by the lender, like applying by a certain time of day, in order to get your money right away. Otherwise, you might need to wait until the next business day to get your money — or even longer, depending on the lender.
When it comes to reverse mortgages, there is a long history of deceitful advertisements. While it is important to keep in mind that not all reverse mortgage providers are out to trick you, there are some that are not being truthful. In particular, reverse mortgage ads that claim there are no costs associated with this type of loan and that homeowners will never lose their homes.
If consumers can’t keep up with their payments, including taxes, upkeep, utilities, and insurance, they risk defaulting on the loans. They may be kicked out of their homes, which is particularly devastating for vulnerable people like seniors.
Be sure to watch out for lenders who use terms like “can’t be forced to leave” and “always retain ownership”. These claims are false and can go against federal advertising disclosure requirements.
Learn more about reverse mortgages scams.
An auto dealership may advertise a low monthly payment for a car lease, but they might try to take advantage by slipping in deceptive clauses in the fine print of your contract.
For example, a dealer might include an ultra low-mileage clause in the fine print allowing drivers to drive 20,000 kilometres over two years with a penalty of $0.25 per extra kilometre. However, the average Canadian drives 15,200 kilometres in their vehicle per year, meaning that they will be forced to pay a $1,200 penalty annually for going over their limit.
There are a lot of lenders out there who put out misleading ads. These ads can be hard to regulate even though there are laws against misleading ads. Before choosing a lender, make sure you do your research and read the fine print of your loan contract. If you do your due diligence, you will be protecting yourself against deceptive lenders and any potential issues down the road.
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Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and NewEngineer.com. In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.
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