Applying for a loan?
Think twice and investigate.
Background checks aren’t just for lenders. You should also take steps to safeguard yourself before attempting to take out a loan.
Lenders always require you to jump through hoops before handing you a loan. Would you expect them to offer you a loan without running your credit?
Don’t be shy. Conduct your own little background check on your desired lending institution. This can help to save your business from falling into the wrong hands.
Neglecting to do your own due diligence can result in becoming a victim. That house that you’d worked so hard to save for may no longer be a possibility if you get taken advantage of.
Read on to learn how you can sniff out predatory lending practices and avoid becoming the next victim.
Avoiding Predatory Lending Practices
The key to avoiding being a victim of predatory lenders is awareness.
Being aware and knowledgeable about the terms and conditions of your loan gives you a powerful shield from predatory lenders. This can help to eliminate your odds of becoming the next one of their vulnerable and unknowing victims.
Amidst all the government’s efforts to eliminate predatory lending practices, bad actors are still out there. This is why it is essential that one must educate themselves before beginning the application process.
You’ll need to know what to look for, so you’ll be able to identify the red flags associated with predatory loans.
What is a Predatory Loan?
Before we can make ourselves immune to something, we must first innoculate ourselves. This can only be done with the careful contemplation of your loan terms and a good deal of research.
You’ll need to be adequately informed about the topic. Doing so will enable you to prepare yourself and act accordingly if you find yourself faced with an offer that doesn’t seem to be above board.
So how can you tell if a lender is being deceitful? What parameters should you set to avoid becoming a victim of predatory lending practices?
Predatory loans are loans which benefit the lender at the expense of the borrower. These loans are likely to come with higher than average loan charges. They may also include clauses that indicate the likelihood of excessive and unnecessary fees.
You should also ensure that loan you’re considering doesn’t come with high-interest rates or prevent you from accumulating equity.
Before settling on a loan, you should always shop around. With this knowledge in hand, you’ll be able to compare the interest rate you’ve been offered with other potential offers.
Knowing what else is out there will give you a good idea of rather or not the loan you’re considering is considered to be a good deal.
Lenders may also attempt to convince the borrower to refinance the loan. This can result in a loan that with a higher interest rate than the one you had on the previous loan.
But They Seem So Nice…
Predatory lenders take on various faces and can seem very charming or helpful initially. Instead of being helpful, they’re likely to be masquerading as trustworthy types while concealing their underlying motivation.
If you’re not prudent in reading the fine print, you could be the next of their victims. Signing off on a loan that isn’t in your favor could mean that you’ll one day lose your home to a greedy loan shark.
When you’re applying for a loan, set aside time to get offers from various lenders and institutions. Inform them of your earnings and make sure your assets are properly assessed and calculated.
Read and study the disclosure statements very carefully. If amidst observing precautionary measures, you still fall victim to predatory lending practices, you should report the incident to the General Attorney’s Office of your state and hire an attorney to defend you.
Looking for the Red Flags
Applying for a loan doesn’t mean that you’ll meet an unfortunate fate. You just have to know what you’ll need to look out for.
Here are some red flags every future borrower should take into account when applying for a mortgage loan.
They’re Offering Below Market Interest Rates
If the interest rate seems too good to be true, chances are that it is. If something doesn’t seem right, chances are they’re looking to prey on the people who are looking for a deal.
Sadly, these are often the people who can least afford to lose. For a predatory lender, however, that means that they are most apt to fall behind on payments once the fees stack up.
If you suspect that this is the case, dismiss the offer immediately.
Chances are that the loan offer in question doesn’t really exist. It’s likely to be a marketing ploy of a predatory lender looking to catch your attention and reel you in.
Remember that the people who engage in these practices are masters of flowery speech. They’ll convince you that what’s on the paper isn’t really anything to worry about. Trust your gut.
Sometimes lenders will grant you a loan with lower than average interest rates. They’re likely to attempt to make up for their loss with overcharges and fees elsewhere.
They Pressure You to Decide Quickly
Predatory lenders will do their best to pressure you while they still have your attention. They will attempt to push you toward acting quickly because they don’t want you to do your due diligence.
You should take all the time you need when choosing a lender.
Loans are typically a long term commitment. Don’t jump into a long term relationship with your lender, without taking the time to learn a little bit about them!
You’ll need to find the offers which best suit your business’ needs. You are about to make a big decision which will greatly affect your monthly cash flow and long-term net worth.
Responsible lenders will respect your right to fully consider their offer and allow ample time before expecting you to agree to their terms.
It Doesn’t Seem Above Board
It’s a common tactic of predatory lenders to get you to willingly sign up for an adjustable-rate mortgage (ARM). This is one of the many loan schemes which could eventually lead you a mortgage you can no longer afford.
You can qualify for an interest rate that you can afford without having to worry about high interest rates.
Remember that predatory lenders aim to bury you in debt so you’re no longer able to pay back your loans. Always seek to apply for loans with fixed interest rates. It’s guaranteed to keep your home safer than it would be under an ARM’s.
They Ask You to Falsify Your Application
If it seems illegal, it probably is. If you’re told to falsify any of your financial documents, you should run for the hills.
What they’re asking you to do is mortgage fraud. Not a little fib.
It is unethical to lie and could lead to repercussions down the road. So if your lender pushes you to lie on your loan application, cancel your loan application immediately. In some cases, you may want to consider reporting the institution and employee involved.
It may seem harsh, but it could prevent future borrowers from becoming victims of their scheme.
Look Out! Hidden Fees Ahead!
Among predatory lenders strategies, this can often be the most difficult practice to spot.
To ensure your safety, you’ll need to read all of the fine print. This is often the place where you’ll find evidence of what could be ahead for you if you choose to move forward.
The fine print often contains all the nasty little details about the charges and fees associated with your loan. While this will take diligence and several likely google searches, we guarantee that it’s worth it. You’ll either be dodging a bullet or breathing a sigh of relief.
You should always know exactly what you’re getting into if you want to avoid becoming the victim of a predatory lending institution.
Get a Loan Your Business Can Afford
Practice your due diligence in shopping around for different lenders. Having several loan offers will enable you to have a healthy selection to compare your potential loan against.
Use this time as an opportunity to weigh your available options. While you may feel bad about walking away after beginning the application process, you owe it to your business. You alone have the power to make the right decisions for your business.
Do your homework and don’t let your business fall prey to predatory lending practices.
To learn more about other issues impacting your small business, visit our resources or call one of our representatives at (855) 610-5626. We’re here to help.