Best Practices in Avoiding High-Cost Loans
- First ask yourself, “Can I really afford to get this loan?”
A "red flag" of a predatory loan is a borrower is allowed, and
often encouraged, to borrow more than he or she can afford.
- Ask yourself, "Do I really need this loan?" If you do, carefully consider all your options such as credit unions or banks.
- Deal with a reputable lender. Select a lender who will put all costs in writing, carefully explain the loan, encourage you to ask questions, and not pressure you into making a quick decision.
- Ask questions and shop around. Get quotes from a minimum of three lenders. Consider the duration or term of the loan and the total cost of the loan fees. The best method of comparing a loan is to compare the APR (Annual Percentage Rate) in the Truth in Lending form.
- Understand the importance of good credit. Knowing your credit score, correcting errors in your credit report and aggressively shopping among several lenders will help you get a good loan. Borrowers with low credit scores may wish to wait until improving their credit score before taking out a loan.
- Know what you are signing. Read the loan documents carefully, especially the fine print. Sign a loan agreement only after you understand the terms of the loan, the fees and your obligation to repay. For a mortgage loan, obtain and carefully review the preliminary statement of final settlement costs (HUD-1 form) the day before closing.
- Speak up if you think you’ve been treated improperly. Try to resolve any problems with the lender. If unsuccessful, check with the Attorney General’s Office of Consumer Protection. Federal government agencies, including the Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), or the U.S. Department of Housing and Urban Development (HUD) are good sources for guidance and assistance.