WhAT IS PREDATORY LENDING?
Predatory lending is any lending practice that misleads borrowers to take out enticing loans that are unethical and deceptive in nature.
WhO DO PREDATORY LENDERS TARGET?
- Low-income families
- Elderly homeowners
- The unemployed
- Individuals with little or no formal education
- Individuals with bad credit or credit issues
HOW TO AVOID PREDATORY LENDERS
These are some common warning signs with predatory lenders:
- They do not perform a credit check or ask about your existing debt
- They rush you to complete your paperwork
- They make it difficult for you to find the total cost of the loan - lack of transparency
- They penalize you for paying off your loan early
- The loan seems "too good to be true"
- The payment structure is not consistent
- They are not licensed
TIPS SHOPPING FOR A LOAN
Never sign a blank document and don't sign something if you don't understand it. Make sure to ask questions about:
- the monthly payment
- the annual percentage rate (APR)
- the total cost of the loan, and
- the length of the loan.
Never agree to a loan if your income isn't enough to make the monthly payment. The lowest monthly payment is also not always the best deal.
Be on the lookout for hidden fees, like insurance and broker fees, and fees for creating the loan.
WATCH OUT FOR BALLOON LOANS
This type of loan means you will owe one large payment when the loan is over. The monthly payments will seem small because you're only paying the interest. When the loan ends, you'll have to pay the entire principal.
If you agree to a loan, keep detailed records.
TRUTH IN LENDING ACT and THE RIGHT OF RESCISSION
In 1968, the Federal Truth in Lending Act (TILA) was enacted as part of the Consumer Credit Protection Act to require lenders to clearly disclose the terms and costs of a loan in writing. This allows consumers to knowledgeably and confidently shop and compare loans. Under TILA, borrowers have the right of rescission for certain loans which permits the borrower to cancel the loan within three days after signing.