ANDREWS AFB, Md. –
Those in the market for a loan may be aware that some products are more attractive than others. However, a few have such poor terms, fees, and interest rates that they are considered predatory. With a little research, people can avoid predatory lending by knowing what to look for when shopping for a loan.
For mortgage loans, predatory lending is the practice of a lender or broker pushing unreasonably expensive loans. For example, they may:
· Talk you into a loan with an interest rate higher than you deserve.
· Persuade you to borrow more than you can afford to repay.
· Falsify documents or ask you to lie on the application.
· Neglect to tell you about the terms of the contract.
· Not give you enough time to review the contract.
There are other types of predatory lending as well, and they are often promoted to people with credit challenges who need money for emergencies. These loans come with exceptionally high interest rates and can feature terms that make repayment difficult:
Payday loans - It is possible to borrow against your future income from a payday lender. However, the APR (interest expressed as an annual percent rate) is usually more than 400 percent, and can go much higher if you refinance the loan instead of paying it off as soon as it comes due.
Car title loans - Your vehicle secures these short-term loans, so if you fail to pay, the lender can take your car. While you have the option to roll the loan over, the interest rate is often 25 percent per month - which equals an annual rate of 300 percent.
A primary defense against predatory lending is to become an informed consumer. Read all contracts carefully, paying close attention to interest rates - does it change under certain conditions? Also, find out what can happen if you are late making a payment. Look out for misleading marketing and high-pressure sales techniques too. Though these loans may be advertised as a way out of financial trouble, they can often leads to higher and more expensive debt.
It is very important to know your financial limits, especially with mortgages. You can lose not just a lot of money but your home if you fall behind on your payments. What a broker may be willing to lend you may be more than you can comfortable afford. Never let someone talk you into taking out more than you can comfortably handle with the idea that future pay raises will take care of any increase in payment.
Building a positive credit history is also key. You can do this by paying all of your debt obligations on time, reducing balances, keeping older accounts active, only applying for necessary credit and having a mix of credit accounts (such as credit cards, charge cards, and installment loans). With good credit, you can borrow responsibly and you increase your chances of being eligible for loans with low interest rates and excellent terms.
For more information on avoiding high cost debt or suggestions for improving your credit, visit the online Education Center at www.andrewsfcu.org /education.