The opportunity to quickly receive a fairly large loan amount on favorable terms often simply blinds potential clients of many credit institutions and organizations. Of course, it is worth carefully rereading every clause of the agreement for hidden fees and additional payments so as not to fall for fraudsters, but when receiving a loan secured by a car, the situation can become significantly worse.
Today, car pawnshops are one of the most accessible and simple ways to receive the required loan amount. You can either leave your car in the company’s parking area or continue using it, which is quite convenient.
At the same time, specialists warn: for every legal car pawnshop that operates in strict compliance with the law, there are 1-2 “grey” or illegal institutions whose main purpose is to receive additional profit at the client’s expense.
Main Risks for Borrowers
What does a car owner risk when signing an agreement with such “grey” car pawnshops? First of all, they will try to push the client into hidden or additional payments, which may be related to a paid inspection or appraisal of the vehicle, mandatory insurance payment, parking payment, and so on.
Very often, loan agreements in such organizations have dozens of pages with additional terms, usually printed at the end of the document in small font. As a result, the borrower, who expected to receive one amount, receives significantly less money in hand, while the interest for using the loan often becomes simply predatory.
Being left without cash is only half the problem, because recently there have been more frequent cases where car owners are deprived of their personal property left as collateral by deception. “Grey” car pawnshops may offer you a sale and leaseback agreement instead of a loan agreement, without drawing particular attention to its details. As a result, the car owner runs a very serious risk of losing their vehicle altogether on entirely “legal” grounds.
What Is Sale and Leaseback?
When signing such an agreement, you must first “sell” your car to the car pawnshop, and then lease it back for the loan amount specified in the agreement. At the same time, the car owner always remains “in the red”, because an illegal car pawnshop is not interested in setting the car’s market value and always appraises it much cheaper.
Ultimately, you may receive significant late-payment penalties, the amount of which is set exclusively by the car pawnshop. In the worst case, if the payments specified in the agreement are not made, you will not be given the opportunity to restructure your debts, and the car will become the full property of the credit organization.
How to Identify an Illegal Pawnshop?
Sale and leaseback is a fairly specific type of lending for car owners, and it has many hidden pitfalls. Without experience in this matter, it is easy to fall for unscrupulous fraudsters.
Specialists recommend paying attention to the following signs of dishonest or grey car pawnshops:
- You are forced to sign a car sale and purchase agreement or the company insists on signing a sale and leaseback agreement;
- Car pawnshop managers require you to sign at the end of blank, unfilled pages of the loan agreement, explaining, for example, that the specialist will fill them in after the car appraisal;
- You are not provided with a loan agreement, pledge agreement, or strict reporting form that any legal car pawnshop has;
- The car pawnshop does not have its own website, which is the first sign of fraud;
- There is no registration in the State Register of Ukraine;
- There is no possibility to make a payment by bank card or cashless transfer, meaning the car pawnshop has no bank accounts.
Delaying time or, conversely, an accelerated procedure without the client’s ability to study the loan agreement in detail is also a reason to think about the legality of the car pawnshop. We recommend choosing such a credit organization carefully, because not only your money is at stake, but possibly your car as well.
