Avoid
High Cost Predatory Lenders
Don't
assume that because you filed bankruptcy you
will have to get credit on the worst terms. If you can't
get credit on decent terms right after bankruptcy, it
may be better to wait. Most lenders will not hold the
bankruptcy against you if after a few years you can
show that you have avoided problems and can manage
your debts.
Be wary of auto dealers, mortgage brokers and lenders
who advertise: "Bankruptcy? Bad Credit? No Credit?
No Problem!" They may give you a loan after
bankruptcy, but at a very high cost. The extra costs
and fees on these loans can make it impossible for you
to keep up the loan payments. Getting this kind of
loan can ruin your chances to rebuild your credit.
Mortgage Loans
If you own your home, some home improvement
contractors, loan brokers and mortgage lenders may
offer to give you a home equity loan despite your
credit history. These loans can be very costly and can
lead to serious financial problems and even the loss of
your home. Avoid mortgage lenders that:
- charge excessive interest rates, "points,"
brokers' fees and other closing costs
-require that you refinance your current lower
Interest mortgage or pay off other debts
-add on unnecessary and costly products, like
credit insurance
-make false claims of low monthly
payments based on a "teaser" variable
interest rate
-include a "balloon" payment term that
requires you to pay all or most of the loan
amount in a lump sum as the last payment
-charge a prepayment penalty if you pay off
the loan early
-change the terms at closing
-make false promises that the rate will be
reduced later if you make timely payments
-pressure you to keep refinancing the loan
for no good reason once you get it
Small
Loans
It is always best to save some money to cover
unexpected expenses so you can avoid borrowing.
But if you are in need of a small loan, avoid the
following high cost loans:
Payday loans - Some "check cashers"
and finance companies offer to take a
personal check from you and hold it without
cashing it for one or two weeks. In return,
they will give you an amount of cash that is
less than the amount of your check. The
difference between the amount of your check
and the cash you get back in return is interest
that the lender is charging you. These payday
loans are very costly. For example, if you
write a $256 check and the lender gives you
$200 back as a loan for two weeks, the $56
you pay equals a 728% interest rate! And if
you don't have the money to cover the check,
the lender will either sue you or try to get you
to write another check in a larger amount. If
you choose to write another check, the lender
gets more money from you and you get
further into debt.
Auto
Title Loans
- For many years, pawn shops
have made small high-interest loans in exchange for
property. A new type of "pawn" is being made by title
lenders who will give you a small loan at very high interest
rates (from 200% to 800%) if you let them
hold your car title as collateral for the loan. If you fall
behind on the payments, the lender can repossess
your car and sell it.
Rent-to-Own
- By renting a TV, furniture or
appliance from a rent-to own company, you will often
pay three or four times more than what it would cost
to buy. The company may make even more profit on
you because the item you are buying may be
previously used and returned. And if you miss a
payment, the company may repossess the item leaving
with you no credit for the payments you made.
Tax Refund Anticipation Loans - Some tax
return preparers offer to provide an "instant" tax
refund by arranging for loans based on the expected
refund. The loan is for a very short period of time
between when the return is filed and when you
would expect to get your refund. Like other shortterm
loans, the fees may seem small but amount to an
annual interest rate of 200% or more. It is best to
patient and wait for the refund.
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