What is so great about low-interest loans, anyway? You still have to repay them, and the longer the repayment term, the more interest you pay over time. Isn’t a low-interest loan just another debt? Debt consolidation loans and other types of personal loans with low interest rates seem more appealing once you find out more about the alternatives. Some types of loans, such as payday loans, have interest rates so high that, by the time you have satisfied your debt obligations, the amount you have paid is twice the principal amount or even more. 

In general, predatory loans such as payday loans and auto title loans target borrowers who have few other options because of their low credit scores or their lack of credit history. The interest is not the only thing that makes some loans unaffordable; lenders can tack on many different fees, some of which are more justifiable than others. Just because you have a reasonably good credit score does not mean that all of the loans for which you qualify will have consumer-friendly terms. Some loans that are fairly difficult to be approved for can also be very costly, such as car loans and store credit cards. If you are struggling with debts you signed up for at a car dealership or a department store, contact an Oakland lawsuits, collections, and creditor harassment lawyer.

When the Seller and the Lender are the Same Company in All but Name

Captive finance is when the lender is a wholly owned subsidiary of the parent company. For example, several major automobile companies provide car loans through wholly-owned subsidiaries. If you have financed the purchase of a Ford, Honda, or Toyota vehicle, your auto loan payments probably go to Ford Motor Credit Company, American Honda Finance, or Toyota Financial Services. Another common example of captive lenders is credit cards issued by retail chains such as Macy’s and Target.

Captive lending is lucrative both for the parent company and for the captive lender; in fact, Investopedia even encourages investors to invest in shares of companies that engage in captive finance practices. Of course, this does not help you if you have defaulted on your Macy’s card or if you are struggling to come up with the funds to write a check every month to Toyota Financial Services in an amount greater than or equal to the minimum payment on your car loan.

Of course, captive lenders do not always equal captive borrowers. There is nothing to stop you from taking out a debt consolidation loan and using it to pay off your car note or a long-maxed store credit card. Likewise, store credit card debts are easily dischargeable in bankruptcy.

Contact the Law Office of Melanie Tavare About Breaking Free From Captive Lending

A debt relief lawyer can help you if your car loan debt or store credit card debt is a source of stress. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a free case evaluation.