There are more honest lenders around than the dishonest ones, but still, there are definitely more than enough dishonest individuals and companies competing for your business. For that reason, it is wise and prudent to be aware of the common tactics of predatory lenders to prevent falling to their traps and be their victim.
Not every subprime loan is a predatory loan but predatory lending seems to have found haven in subprime lending area. There are very reputable subprime lenders but the fact that fraudulent lenders tend to target the easiest prey that they can find. People with poor credit and lesser alternatives are the top candidates for dishonest lenders. People with perfectly good credit but lack knowledge about their own financial situation and about how the lending market really works, are also candidates for predatory lending.
So, if you are in the market for a loan, you need to protect yourself by digesting as much information you can before trying to apply.
You need to find out what the available loan programs are, and where you qualify to. In order to do this you have to beware of your own credit condition by asking for a copy of the report of your credit. Be focused and be aware for these possible predatory strategies.
a. Requiring money upfront. A minimal fee for application is okay, but too much or numerous fees, is not a good sign.
b. Balloon payment. If possible, avoid engaging in balloon payments, or if not, make sure that payments are not due in a too short period of time.
c. Excessively high interest rate. The difference between prime and subprime rates will vary among lenders, and also among loan types and terms.
Once you get to about five or six percent above prime, you can start shopping, though.
d. Charging excessive fees. There are legitimate fees but some fees just don’t appear in the initial disclosure which are called “backdoor fees” and you want to be careful out for them. Calculate everything up for yourself and take note of anything that you are not sure of. You need not to pay more than once or twice of points even for a subprime loan.
e. Pushing a bigger loan. You have to be very cautious of a lender tries to get you to take more money than what is in necessity more especially if your home or land is to be used as collateral. If you need to borrow money, choose the least amount – enough for your needs, with the lowest annual percentage rate, and practical for the shortest period of time. Never go for any amount that you are not sure you can pay.
f. Complicated loan. Educate yourself before engaging in any loan programs. Nowadays, concepts like adjustable rates and negative amortization, or interest-only loans, are complex. Lenders are taking advantage of you not understanding the concept and simply trust them. Don’t let them.
g. Using high-pressure tactics. Don’t let yourself be obliged to sign blank forms, to sign quickly without reading, or encouraging you to falsify your application information are examples of high-pressure tactics. Under any kind of circumstances, never ever do any of these. If in need, hire your own lawyer to check the documents.
h. Mandatory arbitration clause. With this clause, you give up your right to sue for any reason and agree instead to binding arbitration when a dispute arises. This should be, if at all possible, not be a condition for obtaining the loan but be agreed upon at the time of the dispute.
i. “No job, no credit – no problem.” Get out if the lender is more interested and more concerned about your car, house, land, jewelry, or any form of collateral than your financial situation. The lender is concentrating on taking your assets because he knows that you are a bad risk.
j. Prepayment penalties. You will be penalized for trying to refinance into a loan with better terms if your financial situation improves. There is no best prepayment penalty; a once a year prepayment penalty is okay, if you cant get that.
Namon Kent is knowledgeable about the real score in the credit/loan game and it’s dirty tactics. He recommends Debt Free From Credit Cards to help you with regards anything about debt or how to be debt free.
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