Have you ever heard the term predatory lending? It’s a common but unfair practice that diminishes the ability of the borrower to repay their debt. Unfortunately, putting the borrower in the position serves the lender’s interest.
Here’s an example to help you understand this: A buyer is not eligible for a loan. After talking to multiple lenders, they find out that their Poor credit score is nowhere near an acceptable loan amount. A lucky encounter connects them with an independent lender, who agrees to give them a loan. However, the loan has a high-interest rate.
At first, you are skeptical, but the lender convinces you that you will be able to repay the loan in 30 years with some cutbacks in your life. The loan terms sound a bit shady to you, but you are desperate to buy premium Orlando real estate, so you agree to the deal.
When the time comes to make the first monthly payment, you find yourself short of cash. When you ask the lender for a grace period, they don’t grant you one and instead threaten you that there will be consequences if you don’t make the payment.
Now that you know what predatory lending is, let’s take a look at some of its warning signs:
Three-Digit Interest Rates
The first warning sign that you will spot easily is the three-digit interest rate. For example, a car title or payday loan has an APR of 400%. However, some lenders cap the interest at 36% to make the loan affordable.
Closed read your agreement to ensure that the high cap is the annual interest rate and not monthly. Such clauses are hidden in the agreement, and many borrowers assume that since the lender has been upfront about the deal, there’s no reason to go over the contract with a fine-tooth comb.
Charges or Fees for Low Credit Scores
Yes, personal loans are available on bad credit but ask anyone, and they will recommend not to get one because they come with an extremely high-interest rate. What’s not acceptable is using your poor credit as an excuse to pile on different charges.
Predatory lenders use the bait-and-switch trick here. They assure you of being eligible for a loan and then reject your application at the last minute. They will then force you to go with a more expensive option.
Rushed Approval
Nowadays, hundreds of online lenders offer approval within 24 hours, so it can be challenging to spot a predatory lender. However, if the agent is rushing you to sign the papers and makes all kinds of claims, like you won’t find a better opportunity next time or this is a deal that even people with good credit don’t get, abort immediately!
Future Refinance Promises
If a lender promises to refinance the loan if the deal goes south, do not trust them. That’s just a tactic to stretch the loan terms so that you are bound to for the next 2 or 3 decades.
With the housing market hot right now, predatory lenders are looking for their next victim. So, when you approach a lender, keep these signs in mind and thoroughly read the contract.
If you are looking for a reliable Florida realtor, visit the Megan Dowdy Realty website. Their connections to lenders, appraisers, title company, home inspectors, and other experts involved in the process will give you the peace of mind that you made the right choice. For further information, call 407-509-9279.
