South Pittsburgh Reporter - Serving South Pittsburgh Since 1939

Be cautious of lenders and fine print

 

August 7, 2007



Although most lenders are honest and want to provide loans that will benefit you, some take advantage of consumers by charging unreasonably high interest rates and fees, or by not fully explaining the details of the loan agreement.

Closing on a loan with conditions that make it difficult to pay back leaves you at risk of damaging your credit rating, weakening your financial stability or, worse yet, losing your car or home to the lender, if these items are used as security for the loan.

In order to avoid these types of “predatory lenders,” you must carefully consider if the potential lender is reputable and trustworthy and if the repayment terms of the loan are fair. Whether you need a loan to buy a house, car or computer, or to pay for your child's college education or wedding, or to refinance an existing loan, it is crucial to evaluate all aspects of the agreement before signing on the dotted line.

Predatory lenders target people of all demographics, but many routinely seek out the elderly, those who have had credit problems in the past, or individuals with lower incomes who have few borrowing options. They offer a variety of loan types under various circumstances. Many good loans from reputable lenders may require that items be pledged as security, such as a car for an auto loan or a house for a mortgage or home equity loan. When you are dealing with a disreputable lender, however, you put yourself at greater risk of losing the items that were pledged as security.

Some predatory lenders approach people in connection with a home repair. For example, a contractor convinces the homeowner that expensive repairs are needed and then he or she promises to help get approval for a loan to pay for the repairs. Other times, lenders approach consumers directly, offering loans to help pay off their credit cards or other debt. And then tagged on to these types of loan offers are outrageous terms and obligations that the borrower simply can't meet.

Some warning signs of a predatory lender include:

• Promises that “bad credit is no problem.”

• Quickly approves loans for car purchases, home mortgages or home repairs, with little information required from you.

• Gives you a loan with high interest rates, fees or closing costs.

• Pressures you to make a quick decision or to borrow money you may not need.

• Acts evasive and tells you “not to worry” about the details.

• Makes a loan without considering your ability to repay.

• Encourages you to repeatedly refinance loans.

There are laws in place to help protect consumers from predatory lenders, but your best protection is to be informed and follow these tips:

• Ask questions. Keep asking until you get satisfactory answers.

• Be cautious of loan salespeople who come to your door or call you.

• If you are in the market for a loan, shop around.

• Read everything, especially the fine print.

• Don't sign an agreement with any blank areas or with anything you don't understand.

• If you are uncomfortable, ask a trusted friend or a credit counselor for advice.

An honest lender will help you determine what type of loan is right for you and how much of a monthly payment you can reasonably afford, as well as walk you through every aspect of a contract until you understand what you are signing.

The U.S. Department of Housing and Urban Development (HUD) combats predatory lending through research, regulation, consumer education and enforcement actions against lenders, appraisers, real estate brokers, and other companies and individuals that have victimized homebuyers. For more information, visit http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm.

If you suspect that you are a victim of lending abuse, contact the Federal Trade Commission at 1-877-FTC-HELP (1-877-382-4357), or visit http://www.ftc.gov.

By: Cathy Niederberger

PNC Senior V-P Community Development Banking

 

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