- Prescreened mail-in offers, or “live checks,” are personal loans sent by banks or lenders to consumers who meet certain criteria, such as a minimum credit score.
- most of lenders offering living checks don’t take into account your job status, income, or ability to repay new debt.
- cashing the check enters you into a loan agreement that can last for several years and have a high annual interest rate greater than 25%.
- Loans are often unaffordable for borrowers who have other debts to pay.
Have you received a pre-approved offer in the mail this holiday season that looks like a check, made out to you and ready to cash? Before you run to the bank, visions of gifts dancing in your head, know that it’s not free money.
rather, it is more likely to be an expensive loan.
Such pre-screened mail-in offers, or “live checks,” are personal loans sent by banks or lenders to consumers who meet certain criteria, such as a minimum credit score. cashing the check enters it into a loan agreement that can last for several years and carry an annual interest rate of more than 25%.
chris jackson received a live check in the mail last November for $2,500 with an interest rate of 28%. Jackson, a financial planner, was skeptical, but her family reacted differently.
“I asked my family what they would do with (the check), and of course they said they would cash it,” says Jackson, founder of LionShare Partners, a financial planning firm in Los Angeles.
“I was told it would be nice to have extra cash for the holidays, but it’s not cash and the rate was worse than a credit card,” Jackson says.
live controls: costs and risks
Most lenders that offer live checks don’t take into account your employment status, income, or ability to pay off new debt.
Loans are often unaffordable for borrowers who have other debts to pay, says Carolyn Carter, deputy director of the National Consumer Law Center, a nonprofit consumer advocacy organization.
U.S. Senators Doug Jones (D-ala.), Tom Cotton (R-ark.), and Jeff Merkley (D-ore.) introduced legislation to stop what they call the “predatory practice” of sending live checks to consumers.
the Unsolicited Loans Act of 2018, introduced in December. 10, would ensure that consumers get loans only when they apply for them. senators plan to push the bill in 2019.
mariner finance sends live checks with rates up to 36%. In 2017, Regional Finance mailed more than 6 million live checks and earned an average return of 42% on small loans ($500 to $2,500), including live checks, according to its annual report.
read more: 7 smart ways to save money at walmart
The $2,500 loan Jackson received at 28% would have cost nearly $800 in interest over two years.
live checks sometimes have optional add-ons that effectively increase the total cost:
Credit insurance, also called payment protection insurance, is an option that covers the balance of the loan if you cannot pay it due to death, involuntary unemployment or disability. It’s an unnecessary cost if the borrower already has life or disability insurance, Jackson says.
Refinancing may be offered if you cannot repay the loan. you get more cash and a longer payment term, but also additional interest and potentially an origination fee.
Attorney fees may be charged if you do not repay the loan. These fees, which vary in cost from state to state, cover the lender’s expense in taking legal action against you.
what to do if you receive a live check
If you received a live check, follow these steps, whether you plan to cash the check or not.
Check to see if the lender is licensed to do business in your state through your state’s banking regulator. Visit the Consumer Financial Protection Bureau’s complaint database to see if the lender has any complaints.
Understanding loan rates and terms helps determine affordability. the agreement must detail the total annual cost of the loan, represented as an annual percentage rate, and including interest costs and fees; the number of payments required; and payment amounts.
read more: the 20 US cities where shoppers save the most money
Compare personal loan rates and terms at credit unions, banks and online lenders. If you have bad credit, you may be able to get lower rates at federal credit unions, which cap loan rates at 18%. You can also check rates and terms at online lenders. most perform a soft pull on your credit, which has no impact on your credit score.
Create a budget that tracks your spending, which can identify unnecessary spending and help you pay off debt or send money to an emergency fund. then you can use cash for emergencies instead of high-interest credit.
shred and throw away the check if you don’t want the offer. it is possible that someone could steal your check, sign it and cash it in your name. several consumer complaints at the cfpb highlight the risk of identity theft from live checks.
If you never want to receive a live check again, you can opt out of receiving spam.
This article was provided to the associated press by the personal finance website nerdwallet. Steve Nicastro is a writer at Nerdwallet. email: steven.n@nerdwallet.com. twitter: @stevennicastro.