Possible Warning Signs of a Predatory Loan – Part 1

Predatory lending is the practice of using unfair, deceptive, and abusive tactics in lending money. Unscrupulous lenders in the mortgage and consumer lending industries take advantage of borrowers who are less knowledgeable about lending practices, getting them to agree to loan terms that are not only less than desirable, but also financially damaging. Predatory lenders also target borrowers who are so desperate to obtain loans that they will agree to nearly anything.

Beware-Preditory-loansIt sounds too easy

“Guaranteed approval” or “no income verification” sometimes indicate that the lender doesn’t care whether you can afford to make the payments over the long haul.

Excessive fees

Make sure fees are typical of those in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees are negotiable. It is common for home buyers to pay only one percent of the loan amount for prime loans. By contrast, a typical predatory loan may cost five percent or more.

Large future costs

High-risk adjustable rate mortgages with payments that rise substantially after a short introductory period are seldom appropriate for families who already have had problems repaying other loans. Home buyers should also avoid a large, single “balloon” payment (a lump sum due at the end of the loan’s term).

Closing delays

A lender who deliberately delays the closing may be waiting for the commitment on a reasonably-priced loan to expire.

Over-valued property

Inflated appraisals can allow for excessive fees to be included in the loan, resulting in the borrower owing more to the bank than the home is worth.

Barriers to refinancing

Prepayment penalties can make it hard for borrowers to refinance and take advantage of a lower-cost loans.

No down payment loans:

These loans may be split into two mortgages, with one having a much higher cost. Home buyers should be sure they can afford the payments.