You’ve probably heard of loans that that are predatory, but what are they? These are loans that charge you excessive fees or other things that are hidden in the fine print. Early payoff penalties, inflated interest rates, and adjustable interest rates are just a few of the tricks used by predatory lenders to make you pay more than you were told. Here are 10 tips to help you avoid predatory loans.
- Avoid high interest rates.
High interest rates are something that predatory lenders love. These types of loans will typically have interest rates as high as 30% for credit cards or as high as 300% for installment loans. These types of loans are extremely difficult to pay off because they will often increase despite you making your monthly payments on time. To avoid this, ask about the interest rate before you agree to the loan. Then calculate how much you will have paid by the end of the loan.
- Be wary of guaranteed approval.
Guaranteed approval and no credit checks mark predatory lenders. These loans often have high interest rates, and most companies that promise this aren’t aware of the state laws regarding loans. Always go to lenders that check your credit and do not guarantee approval.
- Shop around.
The best way to avoid a scam is to shop around and compare different loans. If one offer seems too good to be true, it probably is. A lot can be hidden in a contract using fine print or legal terminology. Never accept the first loan offer you receive. Compare the costs, interest rates, and fees before you sign any paperwork.
- Ask for a list of fees in writing.
No lender should refuse to fully explain and write down all fees that are associated with the loan. If they try to beat around the bush or avoid a list of fees in writing, then walk about. Lenders should be fully willing to explain any costs you are responsible for. Ask for a “good faith estimate.” This will list all of your fees.
- Ask several questions.
Ask any questions that come to mind. Gauge how the lender responds. If they seem agitated or act as though they do not wish to answer your questions, you might be dealing with a predatory lender. The lender should seem forthcoming and they ought to be willing to go over every detail of your contract with you.
- Do not hesitate to say “No.”
If at any time you feel uncomfortable with a loan, or you think it might be a predatory loan, simply say “no.” Remember that this is something you are ultimately responsible for. You have to pay back the loan or risk repossession or massive interest. If something in the loan makes you feel uncomfortable, tell the lender.
- Read contracts in detail.
The biggest mistake most people make is not reading their loan contract before they sign it. The contract can hide numerous issues like a flexible interest rate or a balloon payment. A balloon payment is when you are expected to make a payment that is much higher than your normal monthly rate. If you need to, take the contract to someone who understands legal terminology. Never sign anything you aren’t confident about.
- Get a copy of everything you sign.
If something happens, you need to have a copy of what you signed. Not only is it useful if you need to go to an attorney, but you can review the information at a later date. Ask if you can get a copy prior to signing. The lender should agree happily, but if they seem shady about giving you a copy, do not sign any contract or document.
- Do not borrow more money than you can afford.
A lender shouldn’t suggest that you borrow more than you can afford. A lender who suggests that you do so is leading you to take out a predatory loan. While it may seem like a good deal at the time, a loan that is much higher than you actually need requires you to pay off more in interest in the long run. This benefits only the predatory lender.
- Never sign a document that consists of blank fields.
No matter what you are signing, never leave blank fields. If the information is not applicable, put “N/A” in the field. Leaving blank documents allows someone to come along behind you and fill in the information they desire. This can be dangerous for you. Always fill out every empty box on a document.