Ravi Chandran
Predatory lending firms can satisfy your immediate needs, but may entrap you with never ending repayments, leading to business failures. Predatory lenders use high-pressure sales tactics and steer you into high-interest loans with lots of junk fees tacked on, even though you may qualify for a better loan.
By: Phoenix Lee/
What is a predatory loan?
The term predatory loan refers to many abusive lending practices. Predatory lending firms use high-pressure sales tactics and steer you into high-interest loans with lots of junk fees tacked on, even though you may qualify for a better loan. High-interest rates and unnecessary fees raise the amount you must borrow, and make it hard for you to make your monthly payments.
A predatory lending firms puts you at risk of losing your business and the money you have paid into it.
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You won’t know if a lender is legitimate or predatory until you shop around and get quotes from several lenders. If you are searching for a business loan, it is important to compare different loans and the cost of each. Even if you have good credit, you can fall victim to predatory lenders. Protect yourself by shopping for loans at different banks, financial institutions, and other licensed lenders.
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Tactics of predatory lending firms
Predatory lenders:
- Don’t tell you about lower rate loans you may qualify for.
- Add unnecessary fees, commonly called “junk fees” to pad their profit.
- Encourage you to repeatedly refinance. This allows them to collect more loan fees from you.
How to get a good business loan
Predatory lenders prey on people who don’t know how good a loan they qualify for. You can protect yourself by doing the following:
Get a copy of your credit report and credit score. The higher your credit score, the better the loan you can get. If your credit score is low, you can learn how to improve your score.
To avoid falling into the trap of predatory lending firms, shop for a loan like you would any other major purchase.
You won’t know how good a loan you can get until you have several quotes. Contact three or more lenders and compare the interest rate, points, and fees. You must receive a Good Faith Estimate, which clearly explains the loan’s details. Compare the quotes you have gotten from different lenders. Look at the loan terms and fees. It should be easy to tell which ones are “predatory loans.” Choose the best business loan with the lowest interest rate and fees.
If you don’t have good credit, lenders consider you a high-risk borrower. The higher the risk you are, the higher the interest rate you will be asked to pay. They are not going to offer you the best business loans with the lowest rates.
However, you may qualify for a high interest loan. A high interest loan not only has higher interest rates, but they also have and fees higher than loans that are offered to businesses with a good credit rating. You should think of high-interest business loans as being short-term. When your credit rating improves, you can and should apply for a better loan.
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Recognizing high interest loans:
- High-interest rates and fees.
- Monthly payments that may only cover the interest and do not reduce the principal balance.
- Balloon payments that have a large payment due in one lump sum at the end of the loan.
- Adjustable interest rates that can increase the amount of your monthly payment.
- Prepayment penalties if you pay off the loan early, even if it’s to refinance the loan for better terms.
Negotiate loan costs and fees
Most banks, financial institutions, and licensed lenders charge points and fees to get you a loan. There are no set fees and charges. Loan charges are negotiable and will vary from lender to lender. You should negotiate the amount of these charges as you would any other major purchase.
Before you sign
Everything you were promised should be in writing on the loan documents. If you do not understand something, do not sign. Ask for an explanation. Review the loan documents carefully. The Truth in Lending Disclosure has the basic terms and conditions of the loan. Make sure it lists the interest rate and monthly payments you were promised. The Settlement or Closing Statement shows the fees you are being charged for the loan. You can question the fees and ask that they are reduced or removed.
New Protections
It is a crime for anyone involved to purposely misstate, misrepresent or leave out information when you apply for a business loan.
Before applying for a business loan, talk to the loan consultants as they can set you up on a path that can get you a it in a quick and seamless manner. Loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. You should also find out money saving tips. Some Affordability Tools help you make better property buying decisions. There are also Calculators which can help you ascertain the fair value of a property and find properties below market value in Singapore.
You should also find out more about Peer to peer lending versus that of SME loans so as to make an informed decision. Contact mortgage consultants for advice on a new SME loans or for home loan or refinancing advice.
