4 Tips to Protect Yourself from Predatory Lending

Predatory lending practices are any that are intended to lead a borrower into a loan he or she cannot reasonably afford. Lenders with statistical data and recommended guidelines understand the types of loans borrowers can afford better than borrowers themselves. As a result, lenders are often a source of advice when borrowers are uncertain over their ability to afford a loan. Some lenders abuse this power and give poor advice. When this happens, there are steps you can take to protect yourself.

#1 Be Informed

The US Department of Housing and Urban Development provides resources to help consumers stay informed about common predatory lending practices. Before you begin seeking any loan, you should familiarize yourself with this information. One helpful resource is the classes offered by the HUD to help you learn about the loan process. While this mostly applies to mortgages, many loans follow the same principles as a basic mortgage. Attending one of these classes can help teach you the tools you need to successfully negotiate a loan. Try visiting a class offered by the HUD, you can find the information on their website.

#2 Use Local Resources

The HUD also maintains local resource centers in every state. The same is true of the SBA, which manages the process of small business loans for a number of government approved lenders. If you are seeking a farm loan, you will be happy to learn the Farm Service Agency also has local service centers. At these centers, you can take classes, ask questions and retrieve information about average loans in your area. You can also gain a list of government approved lenders in your area. Your local service center can be accessed through the appropriate agency's website.

#3 Seek Approved Lenders

Government approved lenders wear a badge showing they have been approved to issue loans guaranteed by the federal government. Basically, any private loan has the potential for a government guarantee. When a loan is guaranteed, the government backs the loan, promising to repay it if the borrower defaults. The government will not do this with just any loan; it sets very specific requirements to assure there is a low chance of default. As such, the government will not back any loan that is predatory. You can apply for a government guarantee separately. However, if you work with a government approved lender, the lender can issue a loan that already has a government guarantee. This happens because the lender has met the requirements in the past.

#4 File Complaints

If you feel you have been a victim of predatory lending, you do have options. These options include the Consumer Protection Agency, refinancing through a government agency, and taking the loan to a judge. If you cannot afford a loan, a judge has the power to excuse you of the debt. This very rarely occurs on most standard loans. Borrowers who can show a loan was predatory in nature, however, may have a shot at getting the remaining debt excused or modified without penalty.


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