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What personal loan complaints reveal

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The Consumer Financial Protection Bureau (CFPB) has been accepting complaints since 2016 from consumers who have had issues with loans through online marketplace lenders. All complaints made since then can be found online on the Bureau’s Consumer Complaint Database.

The CFPB received 600,466 complaints in 2021, and 5,212 of those complaints were related to payday loans, title loans or personal loans. The major themes of these complaints range from trouble receiving loan funds to trouble making payments and unexpected fees.

If you are considering taking out a personal loan with an online lender, you may want to consider some of the issues that previous borrowers have run into, in addition to researching individual lenders.

Online lenders versus traditional lenders

Online lenders offer unsecured personal loans that allow consumers to consolidate debt, renovate their homes or pay for large expenses. Online lenders typically have lower interest rates and fewer fees and can be faster and more convenient than traditional bank loans.

However, traditional banks offer the in-person service and dependability that online lenders can lack. The CFPB had online lenders in mind when they began accepting customer complaints in a public database. The intent is to keep lenders honest about their practices.

“All lenders, from online startups to large banks, must follow consumer financial protection laws,” CFPB Director Richard Cordray said in a 2016 press release. “By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”

Personal loan complaints in 2021: major themes

Out of the 5,212 personal loan complaints the CFPB received in 2021, 1,075 of those complaints were from borrowers who were charged fees or interest they did not expect to pay. This was by far the most common complaint the CFPB received from personal loan borrowers in 2021. Another major complaint from personal loan borrowers surrounded problems when making payments.

Unexpected fees or interest

Customers who experienced unexpected interest and fees with personal loans generally complained about receiving higher interest rates than they were initially quoted and fees that they felt were not openly disclosed by the lender.

Many of the personal loan complaints about unexpected interest and fees were from borrowers who did not have an accurate estimate of the interest they would pay before signing on for a loan. For example, one customer who submitted a complaint about an installment loan was told by an agent over the phone that their interest rate would be 19-35 percent. When she got the loan, she found she was saddled with a 65 percent interest rate she was unable to pay.

Another borrower who had taken out a personal line of credit was not aware of the high interest they would be paying. This customer reported having paid off $5800 of a 4-digit loan (XXXX), but still owed the lender XXXX that they were having difficulties paying off. Despite attempting to negotiate lower monthly payments with the lender, this borrower was unable to do so and experienced damage to their credit score.

Many of the other complaints about unexpected interest and fees were from customers who were blindsided by added fees. One borrower who had taken out an installment loan for $1200 claims they were charged $2200 in fees on top of the original payment. They report that when they confronted the lender about the unexpected high fees, they were told the details had been provided in the information packet they digitally signed.

Problems when making payments

Customers who reported problems making personal loan payments generally complained about being surprised by the frequency of their payments, lenders not notifying them when there was a problem processing their payment and lenders being unwilling to negotiate due dates and late fees.

Frequency of payments

One borrower who had taken out a personal line of credit for $10,000 made a $7,000 purchase shortly after receiving the loan, intending to utilize the lender’s 6 month, 0 percent interest-free program. This borrower assumed they would receive their first bill 30 days after making their first payment, and was surprised when they received their first bill for $1,100 only ten days later.

When they reached out to the lender, they were told that all customers have the same billing cycle, regardless of when the loan was taken out. A representative from the lender claimed this information was provided in the terms of the conditions of the loan, but the borrower maintains that this information was never provided to them.

Payment processing problems

Several personal loan borrowers complained of not being notified when their payments had not gone through and subsequently being charged added late fees.

One borrower who had taken out a personal line of credit had a payment not go through due to issues with auto-pay. They claim that the lender did not notify them that the payment had been rejected, and charged a late fee. The borrower claims that the damage this did to their credit is causing them trouble applying for a mortgage.

Payment negotiations

The most common borrower complaint about making payments is lenders being unwilling to negotiate with them during hard times. These complaints tended to be more general, with borrowers attempting to communicate with lenders about needing to extend their payment due dates or otherwise having a difficult time paying off their loans and generally receiving little to no help.

While some lenders will negotiate with you and offer extensions and grace periods on late payments, they are not obligated to do so and some lenders have strict policies and fees.

Tips to avoid problems with your personal loan

While personal loans can be a great option for people who need extra cash and have the financial security to pay back the loan on time, it is very easy to overlook fee and interest rate disclosures, miscalculate what you will be paying in interest or even fall prey to predatory lenders if you are not careful.

Read the fine print

Before deciding on a lender, it is extremely important to know exactly what fees you will be charged, as well as how high your interest rate could end up being. Many lenders are not particularly transparent with this information, often including these disclosures as footnotes at the bottom of the product’s page on their websites.

Make sure that you have all of this information before deciding to go with a particular lender. Also, carefully read the terms and conditions as well as any other documents the lender sends you during the process of getting the loan.

Know what you will pay in interest

Many of the personal loan complaints the CFPB received last year were from people who ended up paying interest that they did not expect to pay. Keep in mind that you may not always qualify for the lender’s lowest interest rates. Any estimate you receive from an agent before the lender runs a credit check and looks into the full scope of your financial health may not be fully accurate.

Before taking out a loan, calculate your projected interest rate and make sure that you are prepared to make payments given this added cost. If you have less than stellar credit and want to find a lender that will offer reasonable rates for your credit bracket, look into a bad credit loan.

Shop around and compare lenders

You should always shop around and compare lender rates and other details before committing to a specific lender. Different lenders work best for different circumstances. Compare top lenders and consider your full financial picture as well as how you intend to use the loan before making a decision.

Watch out for predatory lending

While there are a variety of legitimate online and brick-and-mortar personal loan lenders available, there are also plenty of personal loan scams and predatory lenders out there for consumers to be wary of.

Beware of deals that seem too good to be true and lenders that pressure you into making a decision. Also, beware of any phone calls or promotional emails received from lenders.

To find out if a lender is legitimate, look up customer reviews, BBB accreditations, and Bankrate reviews.

Borrowers should try to avoid payday loans if possible, as these loans tend to carry extremely high interest rates and are known to launch borrowers into a cycle of endless debt. If you are considering taking out a payday loan, consider an alternative method of borrowing funds.

Bottom line

The personal loan complaints received by the CFPB in 2021 reflect borrowers’ need for greater transparency from lenders about fees, interest and the payment process. They also reveal a trend of borrowers having difficulties paying off their loan products, due to either lack of preparedness on their part or lack of transparency from the lender.

The main takeaway from these complaints is that borrowers must remain vigilant to avoid predatory lending and ensure that they know the exact terms of their loan agreements.

Written by
Raija Haughn
Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term.
Edited by
Loans Editor