Predatory Lending

Comparison shop
Once you've selected a lender


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Comparison Shop

Contact several lenders, and be very careful about dealing with a lender who just appears at your door, calls you, or sends you mail. Ask friends and family for recommendations of lenders. Talk with banks, savings and loans, credit unions, and other lenders.

Comparing loan plans can help you get a better deal. Whether you begin your shopping by reading ads in your local newspapers, searching on the Internet, or looking in the phone book, ask lenders to explain the best loan plans they have for you. Beware of loan terms and conditions that may mean higher costs for you. Get answers to these questions:

 

1

Interest Rate and Payments

  • What are the monthly payments? Ask yourself if you can afford them.
  • What is the annual percentage rate (APR) on the loan? The APR is the cost of credit, expressed as a yearly rate. You can use the APR to compare one loan with another.
  • Will the interest rate change during the life of the loan? If so, when, how often, and by how much?

2

Term of Loan

  • How many years will you have to repay the loan?
  • Is there a balloon payment (a large single payment) at the end of the term after a series of low monthly payments? When the balloon payment is due, you must pay the entire amount.

3

Points and Fees

  • What will you have to pay in points and fees? One point equals 1 percent of the loan amount (1 point on a $10,000 loan is $100). Generally, the higher fees are more than 5 percent of the loan amount, ask why. Traditional financial institutions normally charge between 1 and 3 percent of the loan amount in points and fees.
  • Are any of the application fees refundable if you don't get the loan?
  • How and how much will the lender or broker be paid? Lenders and brokers may charge points or fees that you must pay at closing or add on to the cost of your loan, or both.

4

Penalties

  • What is the penalty for late or missed payments?
  • What is the penalty if you pay off or refinance the loan early (is there a prepayment penalty)?
   

After you have answers to these questions, start negotiating with more than one lender. Don't be afraid to make lenders and brokers compete for your business by letting them know you are shopping for the best deal. Ask each lender to lower the points, fees, or interest rate. And ask each to meet-or beat-the terms of the other lenders.

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