Signs of Predatory Bad Credit Loans
Would you pay extra fees for an expensive loan that does not offer you any financial benefit? That’s how predatory bad credit loans work. They will deceive you into signing loans with hidden costs and terms that may cost you more than what you can afford to pay which could lead to foreclosure.
If you’re looking for bad credit loans, here are signs of predatory lending which you need to know.
Very high or very low mortgage loan amount
How much is the amount of money that you intend to borrow? If you’re a first time home buyer the amount you are borrowing is the price of the home plus fees, minus your down payment.
For example, you took out a first mortgage worth $1 million-it represents the full price of your house plus associated fees and minus the down payment you made. That is exactly the loan amount. Watch out for fees which seem irrelevant or too high. The moment you have paid off 80% of your loan, the $800,000 represents your equity on your home. This time, you can refinance your home, and the amount of loan you can receive is equivalent to the amount of first mortgage plus associated fees. In the given example, a lender can give you a loan which is equivalent to 80% of your equity.
Ordinarily, refinance loan is equal to the payoff of your first mortgage plus other associated costs. You can also include credit card debts, personal loans and other types of debts if you intend to consolidate your loans by refinancing you home.
If you don’t want to pay more interest than necessary over the lifetime of the loan, then be careful when choosing long-term loans. Read through the loan terms to make sure that your debt is structured for your convenience.
Watch out for mortgages and other loans which will make it nearly impossible for you to pay off the loan in full over the loan period-obliging you to make balloon payments when the term ends or face the risk of losing your home to foreclosure. For example, you want to refinance your home for $500,000 and pay it within 15 years. When your lender quotes a low monthly payment which does not cover the entire loan amount, you may end up paying off the remaining balance on the last month of payment. If you don’t have enough money to pay it, the lender can initiate foreclosure proceedings and you may have to leave your house and give it up for someone else, ASAP.
Hidden default fees
Does the lender openly talk about the fees associated with default? If not, ask about it. Try to know how much default fees you will be charged or if there will be an additional interest the moment you fail to meet the loan repayments for a certain period. Try to know the lender’s terms when you cannot keep your repayments up-to-date. It will help you avoid excessive penalty fees.
High Pre-payment penalties
It is also important to inquire about the lender’s terms and conditions when it comes to prepayment and making extra payment. Knowing how much penalties you will incur by paying off the loan in full ahead of the term agreed upon will help you compute how much you’d save by paying off your loan early. If a lender discourages pre-payment by charging very high interests, you’ll know that the said credit provider is only after your money and not your overall financial well-being. Bear in mind that a good credit provider encourages its borrowers to use the proceeds of the loan to make their lives better and not the other way around.
High Percentage Rate
What is the published rate or the percentage interest a certain lender charges you to borrow money? Compare it from the APR’s of the bad credit loans offered by different credit providers. For example, X bank offered an APR of 19% payable within 20 years. Simply multiply the loan term with the APR to get a ballpark of the interest you will have to pay over the term of the loan. In the given example, 19% multiplied by 20 years is 380%. That’s the interest you will have to pay over 20 years, notwithstanding other additional fees and charges fees and charges.
If possible, inquire about the main fees and charges when comparing the bad credit loan with the same type of loan offered by other credit providers. Some lenders have lower APR but it has higher overall cost compared to high APR bad credit loans because they carry higher fees. That’s why cheaper interest rate doesn’t necessarily mean lower loan cost.
Learn how to choose the most appropriate bad credit loans based on your financial capacity and personal situations by making an enquiry with NSW Mortgage Corp today.