There are several reasons why you may need to obtain a loan. Whether buying a house or getting a loan to cover a renovation, it is important to research a lender before borrowing from them. Most lenders want you to borrow what you can pay off comfortably and without hassle. However, there are unscrupulous lenders out there who are only interested in making as much money as they can from the transaction. These predatory lenders tend to charge fees that are higher than the loan itself. The goal of a loan shark is to trap borrowers into an endless cycle of debt.
You can protect yourself from harmful lending by knowing the warning signs and red flags. The following are the six warning signs of harmful lending that you need to watch out for.
No Need of Credit Score
Do not get excited when you come across a moneylender who does not ask to check your credit score. Obtaining a credit score is one of the first steps involved in the processing of a loan request. Although a high credit score will qualify you for higher loans, there are many offers for people with little or no credit. Every moneylender should check to know your score before accepting your application.
Being Rushed Through the Contract
The contract agreement between you and your lender is a legally binding document that should be read carefully. Do not rush through the contract agreement. Most loan officers will help you read through and understand each clause of the loan. They will also provide an opportunity for you to ask questions about the terms and financial obligations before signing.
If you come across a lender that rushes you to sign without carefully going over the terms and clauses of the paperwork, they are most likely trying to hide unfavorable clauses. Also, do not sign any additional documents if you have not read them. The process of signing paperwork for something as important as a home loan can take quite a bit of time. Set aside plenty of time for this process, so you do not feel rushed.
Blank Spaces in the Loan Form
If the agreement document features blank fields or unexpected paperwork that you have not discussed, do not sign it. Blank spaces allow the lender to fill in new clauses that can alter the loan terms while still being legally binding. Carefully assess the paperwork and make sure that each space is filled with the correct value before signing it. Also, maintain a copy of the paperwork for your records so that you can compare the document you signed with the one maintained by the company.
Being Asked to Present Yourself Falsely in the Loan Application
Beware of a lender who requests you to put false information in the loan application. There are strict laws governing the loan process and you are required to adhere to these laws. You will still be held responsible for the information in your loan application, even if your lender is the one who asked you to lie. Committing fraud is a serious offense, and you will be left to face the consequences.
Extremely High-Interest Rates
Do not commit to paying exorbitant interest rates that are higher than the principal. If the interest rate runs into three digits, it is a financial risk that can keep you in an endless cycle of debt. Carefully read the agreement to determine the monthly and annual rate so that a shady lender cannot misrepresent the monthly interest rate to you by making it look like it is annual.
Loan Terms Resulting in a Debt Cycle
Read all the fine print to avoid loans that are designed to keep you in debt. Loan sharks tend to chase after people with limited means to pay back predatory fees and interest. Always choose a loan that is well within your means and one with clear and fair terms.
These are a few of the warning signs that you need to be aware of to protect yourself from harmful lending. At Andraya Coulter, we will work with you to find a loan that is within your budget and designed to help you achieve your financial and personal goals. Contact us today to get started!