If you need a loan,
choose the lender carefully. There are many lenders and con artists who take
advantage of people who have bad credit, who are young and inexperienced, or who
are older and have fallen on hard times. Their "No Credit? No Problem!" loans
can come with very high interest rates and fees and have cost some consumers
their homes.
Here are some types
of loan offers you should be wary of:
Advance-Fee Loan
Scams
A woman calls a number listed in a newspaper ad that promises
fast approval for loans, even for people with bad credit. She is told she is
approved for a $5,000 loan and must send a $250 processing fee in a money order
by overnight mail to an address in Canada. She does, but never gets the loan.
She keeps calling and gets a recorded message. All she has is a post office box
address for the company.
It's always a red
flag if a company asks for large application fees or deposits in advance, and
especially if they want you to send it by courier or overnight mail. For any
loan, you should request written information and review it carefully. All
businesses offering loans in Maryland must be licensed with the Maryland
Division of Financial Regulation. Call the Division at (410) 230-6097 to see if
the company is licensed and if there are any complaints against it.
High-Cost Home
Equity Loans
An older couple who have fallen behind with their bills
get a call from a lender who offers to arrange a home equity loan. Just before
closing, he says that the interest rate will be higher than promised because
they didn't qualify for the lower rate. Later, their daughter notices that not
only is the interest rate extremely high, but they were charged high points and
fees and also charged for credit insurance. The payments are higher than they
anticipated, and they are worried about falling deeper in debt and perhaps
losing their home.
Be wary of lenders
you didn't contact first. Many unscrupulous mortgage brokers solicit by phone or
door-to-door. Always shop around for the best loan rates. Check all fees,
points, closing costs, terms of the loan and the monthly payment. Ask the lender
for copies of the documents you'll be asked to sign, before closing. Ask a
lawyer or trusted friend to go over the documents with you. Mortgage brokers
should also be licensed by the Division of Financial Regulation.
Mortgage Fraud:
"Flipping"
A single mother meets a man who says he can get mortgages
for first-time buyers with credit problems. He shows her a house and tells her
he can help her buy it, promising to handle all the details. He pays off her
debts and gives her money for the down payment, which he tells her to list on
the mortgage application as a gift from a cousin. After buying the house, she
begins having trouble making the payments, since she's also having to pay for
repairs to the leaking roof and a broken stove. After two difficult years, she
loses the house to foreclosure. The bank discovers that the house is worth only
half what she paid. She had been tricked into getting a mortgage that was more
than she could afford, for a house that wasn't worth it.
Avoid lenders who
encourage you to put false information on a mortgage application, such as saying
your income is more than it is or hiding debts that you have. They may only be
interested in making a profit from the sale, not getting you a mortgage you can
afford. If you've had credit problems, ask for the free homeownership counseling
offered by many community organizations. They can review your income, assets and
credit rating to help you work on qualifying for an affordable
mortgage.
Payday
Loans
A man runs short of money a week before his next payday. He goes
to a business that advertises "post-dated check cashing" or "deferred deposit
services." The business gives him $400 cash in exchange for a personal check he
writes for $440, which it agrees not to cash until the next week. He doesn't
like losing the $40 but he needs the money. He ends up going to the business two
or three months in a row. It seems he can never save enough money for
emergencies.
The high cost of
these cash advances eat away at your paychecks and make it likely you will need
to borrow again. Some alternatives when you're short on money: Ask your
creditors if they will accept partial payments from you. Ask your employer for a
pay advance. Some community organizations or faith-based institutions offer
emergency loans. Many credit unions offer their members small loans, lines of
credit, and overdraft protection.
To prevent money
shortages in the future, start a savings account. Ask if your employer offers
automatic deductions from your paycheck to savings each pay. Even $10 per pay
will add up. If you are continually short of money, you need some help in
budgeting. CCCSMD may be able to help you work out a payment plan. They offer low-cost debt management programs, and many creditors and collection agencies agree to participate with these plans. Call toll-free (800) 642-2227; Their website is: www.cccsmd.org
Check-cashing
services can only charge up to 10 percent of the amount of your personal check,
and the transaction cannot be renewed. Businesses that offer check cashing
services must be licensed by the Division of Financial Regulation. If you have a
question or complaint about such a service, call 410-230-6097.
Credit Problems?
Don't Give Up
Don't assume that your past credit problems will limit your
loan choices to only high-cost lenders. If your credit report contains negative
information, but there are good reasons for trusting you to repay a loan,
explain your situation to the lender. If your credit problems cannot be
explained, you will probably have to pay more than borrowers who have good
credit histories. But don't assume that the only way to get credit is to pay a
high price. Take the time to shop around and negotiate the best deal that you
can.