Predatory Lenders: DFS vs. Corrupt Loans
So, what are Predatory Lenders?
Predatory Lenders can be categorized as untrustworthy lenders who give out incredibly unethical loans. Furthermore, these loans typically have misleading language and terms that end up putting the borrower at a huge disadvantage. As a result, the terms are usually affordable, with interest rates at unrealistic heights. Remember if a contract seems completely one-sided its most likely unethical.
What do we do to help?
First of all, here at Demand Financial Services we work hand and hand with business owners. We hold transparency above all else when discussing potential business loans. Honesty and trust are our most integral qualities, especially when dealing with other people’s money. Above all, we help fight the fight against predatory lending practices through education. We want potential borrowers to know what to look for. Even more, we want you to be completely informed of not only what to look for when finding a loan provider, but also how to handle a predatory lender. Through this article, you will learn what red flags to look for when dealing with potential lending predators.
Predatory Lending to watch for…
- Hidden balloon payment:
- A balloon payment is a large sum of money paid at the ending cycle of a loan. Due to some shifty actions by the lender this payment is much larger than any of the other previous installments. That absorbed amount of money is typically under some small stipulations within the contract itself.
- The “Home Improvement” loan:
- When a home improvement contractor asks for money upfront for a job and runs with. In some cases, they go through with the job, but the quality of the work isn’t up to par with how they advertised it.
- Bait and switch:
- In this scenario, a lender will give you the papers to sign to get a loan, typically for a mortgage payment. Unfortunately, those piles of documents hide a stipulation that surrenders the title to your house to scammers in exchange for a “rescue” loan. The rescue portion being a loan that was supposed to allow you to continue owning your home.
- Insurance packing:
- This type of fraudulent practice typically ties itself with home equity or home loan agreements. In this scenario, a lender packs an insurance policy clause into the person who borrowed the money’s home equity mortgage contract. As a result, the damage isn’t felt until the borrower starts feeling the financial effects of the insurance clause.
- Prepayment penalties:
- Its an agreement between the bank or lender and the borrower. In this scenario the lender controls the amount of money the borrower can pay off and when these payments can be made.
- Loan flipping:
- In this loan process, the borrower is coerced into repeatedly refinancing an existing mortgage. Consequently, the borrower is charged fees for not only the newly existing loan but also a prepayment penalty on the older loan.
Who is usually targeted?
- People in financial crisis-
- They seek people in extreme need for cash who need it in a hurry. This can happen due to many reasons. For example job loss or major home repair can put someone in a financial crisis.
- Elderly Individuals-
- Elderly people are usually the most susceptible to these types of scams. These individuals are typically on a fixed income and can’t afford home repairs and other expenses.
- Low-income families-
- These individuals tend to end up paying more in loan payments even if they have an acceptable credit score. They are more prone to accepting specific types of loans that are innately abusive to the borrower.
- People of Color-
- People of color are three times more likely to receive high-cost mortgage loans according to the Center for Responsible Lending.
- Military Service Members-
- For the people that are associated with this group there’s a huge market in swindling them financially. Predatory lenders target armed forces members for a few reasons. For one these individuals often have limited credit ratings as well as typically being young and impressionable. Consequently, these factors reduce the options available to them for borrowing.
A Predatory Lender might not answer this…
Don’t get me wrong every lender is different and all contracts aren’t equal. Some contracts might have extremely meticulous language that can put new business owners in a fit of confusion. In contrast, other contracts can be as simple and straightforward as writing your name. But don’t be fooled, these practices don’t explicitly tell you whether a lender is authentic or not. Fortunately, there are a few things you can ask the lender to make sure that they are on the up and up.
- Do you foresee any changes to the loan that you would like to bring up to me?
- Are the terms in the contract capped, or would I be able to extend it at any time in the near future?
- In this contract are there any prepayment penalties that I need to know about?
- What are all the possible fees that may occur due to me applying for this loan?
- Are there any fees in this contract that goes outside the loan such as account fees?
- On the contract does it stipulate that the interest rate is capped or will it change during the course of the loan?
