Growing numbers of
aggressive, dishonest lenders advertise their
services to people in financial need - people who
may have fallen behind on property taxes, or need
money for medical bills, or face costly home
repairs. Instead of offering a fair loan, these
lenders use smooth-talking salespersons, high
interest rates, outrageous fees, and unaffordable
repayment terms. Homeowners can be tricked into
taking out loans that they cannot afford to repay.
Some homeowners may lose their homes to foreclosure.
Be cautious.
Be suspicious of anyone who offers you "bargain
loans," whether they send you an offer, call
you on the phone, or come to your door. Don't rely
on salespeople who promise easy credit. A bad loan
can be a very costly mistake. Beware of offers that
are only "good for a very short time." Be
suspicious of anyone who contacts you first -- most
good mortgage lenders or credit companies don't
solicit business over the phone or just show up on
your doorstep unannounced.
Slow Down!
Never act quickly. Avoid lenders who call and
promise guaranteed, low-interest loans, who take
applications over the phone, or who offer next-day
approval if you pay them some money today. Say
"No" to lenders who ask for up-front fees
"to cover the first payment and other
expenses." You may never receive the loan.
Shop around.
If you need a loan, start by contacting local
financial institutions. See if you are eligible for
a loan from a local bank, credit union, or mortgage
company. Whether you borrow for home repairs,
medical expenses, or debt consolidation, compare
total costs of the loan as well as interest rates.
Understand the points and fees. A loan with a lower
monthly payment is not always the better deal; it
may have a high balloon payment that is due in a few
years. Use the phone to check out lenders. Ask the
lender for names of other customers and call them to
see if they are satisfied. Check with your local
Better
Business Bureau or state attorney general and
ask if there have been complaints against any
company you are considering. Ask how to find local
housing counseling agencies.
Avoid
"balloon" payments.
One way that
lenders make loans sound very attractive is to make
the monthly payment small but require a big balloon
payment at the end of the loan period. Some loans
have you wait to repay the entire loan amount until
end of the loan term. Lenders may promise to help
you refinance when it comes time to pay it off, but
watch out! This promise may be just a way for the
lender to charge you higher fees and closing costs.
Predatory lenders make money by charging excessive
fees every time they refinance the loan.
Ask questions.
Before borrowing money, know exactly what the lender
is offering. You have a legal right to know the
total cost of the loan, the annual percentage rate,
the monthly payments, and how long you have to pay
back the loan. Always ask questions until you
understand everything. Have all fees and points
explained. It is important to know more than the
monthly payment. Recognize that credit insurance
only protects the lender, not you.
Read carefully
before you sign.
Whenever you borrow money,
don't sign anything you don't fully understand.
Always assume that any paper you sign is a contract.
You can insist on changing anything in a contract
that you don't like or can't agree to. If the lender
won't change the contract to your satisfaction, get
a loan somewhere else. Before you sign the loan
papers, ask a lawyer or trusted friend to go over
them with you. Don't sign a document with blank
spaces; all spaces should be filled in before you
sign.
Do not be pressured
into signing any loan papers that you do not
understand.
You can change
your mind.
You can back out of getting a loan
any time before you sign. If a new development
surprises you, delay or stop the process. If you've
already signed a contract that uses your home as
security, the Truth in Lending Act allows you to
change your mind, for any reason, within three
business days of signing the contract. Think
carefully before you sign, and remember: you have a
little time to change your mind.
Think about a
reverse mortgage.
If the homeowners are 62 or
older, a reverse mortgage may be better than getting
a home equity loan. A reverse mortgage gives you
money that you don't have repay until you move, sell
the house, or die. You choose to get the money as a
lump sum payment, a monthly income, or a combination
of both. If you get a reverse mortgage, you can't
lose your house to foreclosure the way you could
with a home equity loan. A reverse mortgage does use
the equity in your home, so consider your options
carefully.
Get help if you
think you have an unfair loan.
Contact your
county office of consumer affairs or your state
Attorney General's office. You can find their
numbers in the blue (government) pages of your phone
book. If you are a victim of bad loans, let others
know. You can help stop predatory lenders from
victimizing someone else. Report the fraud to the
Federal
Trade Commission.
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