What business is more common than McDonald's1 and far more dangerous to your wallet? Predatory payday loan stores. With military personnel made frequent targets of predatory lending practices,2 borrowing money can seem like a dicey undertaking. "Even in the world of auto loans, predatory practices can trap borrowers in a snowballing cycle of debt," says Joe Pendergast, AVP Consumer Lending at Navy Federal Credit Union. "The best thing consumers can do to avoid potential pitfalls is to know what to watch out for and find a trustworthy lender."

Armed with Knowledge

Predatory lending is defined as any lending practice in which borrowers are deceived, coerced or exploited into taking out an abusive or unfair loan. "Predatory lending takes a variety of forms, from payday loans, which offer fast cash at a huge overall price, to more subtle but costly methods in auto loans," says Pendergast. "There are several ways people can spot–and avoid–high-risk or predatory car loans that may embroil them in a cycle of debt." Here is what to watch for and how to play it safe.

  • High interest rates. Research current interest rates so you'll be able to recognize and avoid those that are unreasonably high.
  • Add-on products. Expensive features, insurance packages and service contracts can jack up the loan amount without benefiting the buyer. Research car features and pricing before you shop so you can avoid being lured or tricked into unnecessary expenses.
  • Yo-yo scams. Fraudulent dealers may encourage a buyer to take a car home before the financing is settled and then require the buyer to re-negotiate the deal at a higher rate or cost. Don't leave with your car until the loan is finalized.
  • High-pressure tactics. Be wary of deals in which you're pressured to take on more debt than you can afford or to sign agreements quickly. Use auto loan calculators before you shop, so you know your budget. If you sense pressure, trust your gut instinct and walk away to re-evaluate before you sign.
  • A promise of credit regardless of your credit history. Lenders that cater to consumers with bad credit may be charging higher interest rates than necessary. Know your credit score and what it means for your borrowing power so you can recognize when a lender is exploiting your history.

The Best Safeguard

Using a reliable lender is one of the best means of protecting yourself from predatory lending. "If you need a loan, credit unions are an ideal option because our duty is to serve our members rather than to make a profit," Pendergast explains. Navy Federal has many auto loan options that can help you get behind the wheel without falling behind financially. Find an auto loan suited to your needs.

1Source: Federal Reserve Bank of St. Louis, Consumer Financial Protection Bureau, "The extension of high-cost credit to servicemembers and their families,"

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.