Sometimes paychecks just can’t come quick enough.
Maybe the car broke down, your child broke an arm or you just got a little behind in the bills. Rather than face potential military penalties, you might try to play it safe by getting a cash-advance loan from the multitude of lenders that surround your base.
That’s almost always a bad idea.
The reality is military members are more likely to be financially over-leveraged than civilians, according to a sweeping study released last year by the FINRA Investor Education Foundation.
The study found that a third of enlisted personnel and junior NCOs have used a non-bank loan such as cash advances. Nearly 15 percent of military members surveyed had used a credit card for a cash advance loan.
Risky lending is one the biggest threats facing those who serve.
How it Works
Before the John Warner National Defense Authorization Act was passed in 2006, cash advance borrowers were paying interest rates of 400 to 800 percent. Now, the law only allows 36 percent APR to be charged to military members, but lenders have found loopholes to keep members in debt.
Rather than charge high interest, a lender may charge a high lender’s fee, which can equate to a 400 percent APR. The fee is taken out of each loan amount, but the principal to be repaid does not change.
Signs of a Scam
Here are some signs of a bad lender:
- No interest in credit history, but interest in Social Security and banking information
- An up-front fee charged to cover “insurance,” “processing” or “paperwork” before you receive any cash. (Also, if you discover any fees not clearly defined and presented to you, walk away)
- Loans offered by phone asking you to pay a fee before any loan is delivered
- A name too similar to a credible loaning business
- A lender registered to a different state than your own
- A lender that asks you to wire money
Beyond the Loan Scam
Sometimes scammers will call to collect fees for a loan you never took out. They will threaten a lawsuit if you do not pay their penalties immediately. To sound legitimate, they will use lending sites to gather and provide your address, banking information and Social Security number.
Be sure to keep track of actual loans taken out and check the background information on the company name they claim, the attorney they will use and other critical information.
Avoiding Advance Loans Altogether
The military does provide financial resources that may help you avoid scams and debt altogether.
Contact the community service offices to see if there is a zero percent loan offered through your military base’s emergency relief fund. If not, you can contact a credit union for a short-term loan with reasonable interest rates.
Photo courtesy taberandrew