Borrowing money online can be quick and easy. But getting a loan from an online lender can be risky.
Predatory loans
Some online loans have very high interest rates that are illegal in Illinois. The Illinois Predatory Loan Prevention Act limits the interest rate on most consumer loans to 36% APR.
Even though this law covers loans made over the internet, some online lenders try to charge more than 36% APR. They claim Illinois law doesn't apply to them because they are based on tribal land, in another state, or in another country.
For example, Someone in Illinois borrowed $1,000 from an online lender based in Utah. The lender charged almost 483% APR. The loan papers said the loan followed Utah's rules instead of Illinois' rules. An arbitrator and court agreed that the high interest rate was allowed.
Even if the law is on your side, it can be hard to fight an online lender once you have signed a loan.
- Forced arbitration: Many online loan contracts say you cannot sue the lender in court. You have to take any dispute to a private arbitrator instead. This often blocks you from using Illinois courts to enforce your rights.
- Out-of-state law: Many online loan contracts say the law of another state, tribal law, or even another country applies — not Illinois. Courts sometimes strike these down, but not always.
- Tribal or offshore lenders: Some online lenders are based on tribal land or in another country. They may claim Illinois law does not apply to them. Fighting back can be slow and hard, even when you are right.
Contact a consumer lawyer if you took out a loan with an APR over 36%. The lender may have broken Illinois law, and a consumer lawyer may be able to take your case on a contingency basis. That means that you don't pay anything, unless you win or settle your claims against the debt collector.
Signs your online loan may be predatory
Be careful if a loan offer:
- Charges interest higher than 36% APR,
- Promises instant cash before payday,
- Charges extra fees to get money faster,
- Asks for steady access to your bank account,
- Tells you to keep borrowing or refinancing, or
- Promises easy approval with no credit check.
Read the fine print
Read the loan contract carefully before signing. Be careful if the agreement says:
- You cannot sue the lender in court (forced arbitration),
- The law of another state, tribal land, or country applies,
- The loan is from a lender not licensed in Illinois, or
- Hides the total cost or fees in the fine print.
Before signing, consider your options
An online loan may feel like an easy solution, especially when you're stressed about money.
Before you sign, consider if you have better options:
- A loan from a credit union
- A lower-interest credit card
- Help from a local charity or community group
- Asking your current lender for a payment plan or hardship program