There is a wide range of practices that fall under the heading of predatory lending practices. Due to highly computerized modern technology, scammers have found new ways to wheedle the customers into accepting loans with unfavorable terms.
But in most cases, it is not the products which are predatory but specific practices which can do a lot of damage to your investments. Some of these specific predatory lending practices are:
- Asset based lending
- Balloon payments
- Loan flipping
- Loan packing
- Negative amortization
- Prepayment penalties
- Reverse redlining
- Risk based pricing
These practices are commonly used today by many companies. Due to the intricate complexities of these terms, many people fail to recognize the real purpose behind a lender’s motives and fall prey to the vicious cycle of never-ending debt. But there is always a cure for every disease. We will tell you how to protect yourself from such scammers and if you have fallen victim to their practices, what steps can be taken to get out predatory loans.
1. Stay Updated about Resources
Before you go out looking for a loan, stay informed about how much debt you can carry. You can do this by finding your DTI (debt-income ratio). Ideally, your loan should not exceed your DTI above 36%.
2. Ask a lot Questions
After you have found a lender to work with, make sure that you stay well informed about all the details of your loan. Ask him/her if there’s a chance of having variations in your monthly payments at any point during your loan term. It should also be asked whether the type of loan you are getting has a three-day right of recession.
3. Report the Lender
If you have found out that you have been played by your lender, report the lender who sold you predatory loan. File a complaint with the CFPB with your state’s banking office. If you feel like your lender has deliberately been dishonest to you, it is recommended to report him.
4. Use Rights of Rescission
As per the regulations of TILA, all home equity loans and lines of credit, and many refinance loans come with the right of rescission. This gives you the freedom to cancel the loan within three days after signing it without asking any questions. Some predatory lenders will not disclose this crucial piece of legal information to you in an attempt to bind you with the unfair terms of their contract.
5. Sue the Lender
If any terms of the contract clearly violate the regulations of TILA or some other state lending law, instead of panicking and worrying about your loan, you can simply sue your lender. This will prevent him from exploiting you any further and you may control the situation before it gets out of hand.
The above mentioned measures are just a few precautionary steps we have told you about. There are other security measures present in law which will give you protection and safety.