Living for Today — Planning for Tomorrow
News You Can Use
Don’t be a victim of predatory lending
A letter arrived in your mailbox a few weeks ago stating, “Need money? Bad credit? No credit? No problem!” You felt as though your prayers had been answered and this was just the offer you had been looking for to consolidate all of those credit card bills. So you filled out the application and mailed it the next day. Getting the loan was so easy, but the interest rate on the final loan paperwork was much higher than promised.
A contractor advised you that you needed a new roof and offered to arrange financing. What he failed to tell you was the loan would put your home’s equity on the line. The loan had an extremely high interest rate, lots of points, a huge balloon payment and a credit life insurance policy. Now you are about to lose your family’s home because you cannot make the payments.
These are two illustrations of predatory lending. Be careful selecting a lender the next time you need a loan, whether it is for buying a home, making repairs, paying off credit card debt or making major purchases. Some lenders do not have your best interest in mind. They want to cash in on your need. These predatory lenders typically offer loans with high interest rates, high finance fees and unnecessary charges for extras, such as credit life insurance.
The cost of doing business with these lenders is high. You could lose not only your money, but whatever you used to secure the loan, even your home. If you pay the loan the lender benefits from high interest rates, fees and charges. Or the lender wins by foreclosing on your property.
A predatory lender may be a large company with a name you recognize or it may be a small company or loan broker you have never heard of.
Predatory lenders target desperate, credit-impaired homeowners with a considerable amount of equity in their home. Common targets are the elderly, minorities and limited resource homeowners. But, anyone can become a victim.
If you are searching for a reputable lender, do some checking before you sign papers. First of all, ask family and friends who they recommend. Contact the Better Business Bureau for a list of BBB members in the industry and to get business reliability reports. You can also get references from lenders and check them out. (24 Hour Line: 1.800.987.8280.)
Keep the following in mind as you shop for and deal with lenders:
- Comparison shop for the best loan and annual percentage rates, loan lengths, monthly payment amounts, etc. Stay away from loan offers initiated by the lender via unsolicited mail, telephone calls or visits. Avoid lenders who promise you can get a loan regardless if you have good credit or bad credit.
- Do not be influenced by high-pressure sales tactics.
- Borrow only the amount you need and understand exactly how much the entire loan will cost. Do not agree to a loan if you do not have the income to make the payments.
- Beware of loans with one large balloon payment at the end.
- Do not agree to a loan that includes extra products you do not want, such as credit insurance.
- Walk away from the deal if your questions are not answered.
- Do not deed your property to anyone. Reputable lenders will rarely ask you to sign over your deed.
- Consult an attorney, a knowledgeable family member or someone else you trust to review loan paperwork if you are unsure of some issues. Do no sign any documents you have not read, do not understand or that have blank spaces to be filled in after you leave.
- Remember you have the legal right to change your mind for any reason within three days of signing most loan contracts using your home to secure it.
Common predatory practices include charging high interest rates and/or undisclosed and/or improper fees; pulling a bait and switch; arranging the loan with low monthly payments and a large balloon payment at the end; packing the loan with expensive and unnecessary products such as credit life/disability insurance; flipping (repeated refinancing – each time more fees and loan amount grows); misrepresenting or hiding critical loan terms, including the borrower’s three-day right of rescission.
Don’t be a victim of predatory lending. If you have been a victim of lending abuse, contact the office of the state Attorney General at 1- 800-281-4418. For more information contact your Area Family Resource Management Agent with Mississippi State University Extension Service through your county extension office.