The dictionary defines predatory lending as any lending practice that imposes unfair and abusive loan terms on borrowers. So, how can you identify a predatory lender from your friendly neighborhood lender?
Here are some things to look out for:
- HIGH INTREST RATES
Bankrate suggests that you look up what the current rates are for your area so you get a good idea of what to expect. If what the lender offers is outrageously higher than the average rate, this is a major red flag. Take this as a sign to pack your things and get out of Dodge!
2. EXCESSIVE FEES
There are a multitude of fees that come with the loan process such as an appraisal fee, credit report fee and application fees, just to name a few. To know if you have stumbled into the lair of an evil lender, do your research. A simple Google search of “What is a typical amount for an appraisal fee?” can save you headache and heartache. If the fees that the lender is quoting you are blown way out of the water this is a tell-tale sign of a “no Bueno” lender.
3. ADJUSTABLE RATES
Adjustable rates mean that the rates that are applied to your payment can change over the course of the loan. With these types of rates, you may start off with low interest rates and payments. However, you should know the fact that these payments may begin to increase as time goes on. In some cases, payment amounts can increase to a point where the borrower will not be able to make payments, which can lead to the loss of collateral, or in some cases, your home. Then, these predators will try to lead you down a rabbit hole of continual refinancing, which will undoubtedly lead to additional fees and more money owed. This “refinancing” can end with the borrower in a worse situation than what they started.
4. LOAN FLIPPING OR “CHURNING”
Bankrate states that loan flipping occurs when predatory lenders will flip your loan into one that has higher interests rates as well as a longer term. Refinancing can be beneficial for many borrowers, but with a predatory lender, it can be the exact opposite. They will be sure to “refinance” it so that they will be the only ones reaping the benefits.
5. NO CREDIT CHECK
If a lender ever gives you an offer without checking your credit history this is an ABSOLUTE RED FLAG!! While you may have a less than pleasing credit history, this history is used to assess your ability to pay off your loan with reasonable terms that are catered directly to you. If your lender skips this step, they will no doubt attach more fees, and other nonsense, and could cost you more in the long run.
6. BAD REPUTATION
This is not the Joan Jett song and is in no way a good thing. If your lender has bad customer reviews, say ‘thank you, but no thank you” and move on. This is one way you can be proactive in protecting yourself from these scoundrels. DO YOUR RESEARCH!! Read reviews carefully and look for reviews that sound level-headed.
The main point that I am getting at is to do your research so you know what to look for. This research may seem like a hassle, but it will help you out in the long run. There are many predators out there in the world and predatory lenders have a real capacity to ruin your life. These companies are only out there for the benefit of themselves. They are in no way trying to help you; they’re trying to take advantage of you. So, please, do your research. Here at Central National Bank we have very reputable lenders that ARE here to help you and are looking out for you!