Common predatory lending practices

Watch out for these predatory lending practices.

Instructions: Click each predatory lending practice to learn what to watch for.

Encouragement to include false information

If a lender has changed any of your income or expense information or leaves your income blank, do not sign the loan application.

Incomplete loan documents

Never sign a loan document with missing information. Don’t work with a lender who asks you to sign a document that is not completely or accurately filled in.

“Bait and switch” sales tactics

A “bait and switch” occurs when a lender makes promises in order to make the sale, then backs out on the promises after the sale. To avoid this, it’s critical to carefully read and understand the agreement before you sign. Question anything in the document that is not consistent with what you were told. Don’t sign the agreement if anything in it is unclear, incomplete, or not as promised.

Biweekly loan payments

Some lenders may charge you up to $1,000 for the “privilege” of paying your loan biweekly. Although this can decrease the total interest you pay over the life of the loan and the time it takes to pay in full, such accounts can often be set up for free or for a one-time fee of a few hundred dollars.

Advertisements promising “No Credit? No Problem!”

These are often warning signs of scams. Consumers responding to such ads are guided through a phony application process and may even receive fake loan approval documents. To receive the approved loan, they are told to pay money up-front for fees or services — and instead, end up losing their money — and in some cases, their homes.

Promises to refinance the loan to a better rate in the future

No one can make you that promise. Instead, ask the lender if there is anything you can do to get a better rate now.

Note: Balloon payments are large, lump-sum payments due at the end of the term. Before you agree to a balloon loan, make sure you fully understand and are prepared to pay the loan balance when it’s due.

Learn about loans in the topic All About Credit.

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