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A debt loan can mean it is a debt consolidation loan or a loan
to pay off you student debt without debt consolidation
A debt loan can have many different meanings. If someone is in
debt, then they have and they want to pay it off, but don't have
the money, then they usually opt for a debt loan. If you have an
outstanding student loan and can't use a debt consolidation program,
you can get a debt loan, from whoever is willing to give you money
and pay off that debt.
Often companies will offer a debt loan to help you pay off all
of your debt. They will say that you can use a home equity loan
to serve as a debt loan. You can only get that type of debt loan
if you own a home. Find out the interest rate of that debt loan,
because some times the interest can be outrageous, and put you in
a bigger whole than you are already in. Many debt consolidation
counselors can tell you about this debt consolidation loan plan.
The following section is some things you want to watch out for when
getting a debt loan.
A Debt Loan Or A Big Scam?
Do you own your home? If so, it's likely to be your greatest single
asset. Unfortunately, if you agree to a loan that's based on the
equity you have in your home, you may be putting your most valuable
asset at risk.
Homeowners-particularly elderly, minority and those with low incomes
or poor credit-should be careful when borrowing money based on their
home equity. Why? Certain abusive or exploitative lenders target
these borrowers, who unwittingly may be putting their home on the
line.
Abusive lending practices range from equity stripping and loan
flipping to hiding loan terms and packing a loan with extra charges.
The Federal Trade Commission urges you to be aware of these loan
practices to avoid losing your home.
The Practices
Equity Stripping
You need money. You don't have much income coming in each month.
You have built up equity in your home. A lender tells you that you
could get a loan, even though you know your income is just not enough
to keep up with the monthly payments. The lender encourages you
to "pad" your income on your application form to help
get the loan approved.
This lender may be out to steal the equity you have built up in
your home. The lender doesn't care if you can't keep up with the
monthly payments. As soon as you don't, the lender will foreclose-taking
your home and stripping you of the equity you have spent years building.
If you take out a loan but don't have enough income to make the
monthly payments, you are being set up. You probably will lose your
home.
Hidden Loan Terms: The Balloon Payment
You've fallen behind in your mortgage payments and may face foreclosure.
Another lender offers to save you from foreclosure by refinancing
your mortgage and lowering your monthly payments. Look carefully
at the loan terms. The payments may be lower because the lender
is offering a loan on which you repay only the interest each month.
At the end of the loan term, the principal-that is, the entire amount
that you borrowed-is due in one lump sum called a balloon payment.
If you can't make the balloon payment or refinance, you face foreclosure
and the loss of your home.
Loan Flipping
Suppose you've had your mortgage for years. The interest rate is
low and the monthly payments fit nicely into your budget, but you
could use some extra money. A lender calls to talk about refinancing,
and using the availability of extra cash as bait, claims it's time
the equity in your home started "working" for you. You
agree to refinance your loan. After you've made a few payments on
the loan, the lender calls to offer you a bigger loan for, say,
a vacation. If you accept the offer, the lender refinances your
original loan and then lends you additional money. In this practice-often
called "flipping"-the lender charges you high points and
fees each time you refinance, and may increase your interest rate
as well. If the loan has a prepayment penalty, you will have to
pay that penalty each time you take out a new loan.
You now have some extra money and a lot more debt, stretched out
over a longer time. The extra cash you receive may be less than
the additional costs and fees you were charged for the refinancing.
And what's worse, you are now paying interest on those extra fees
charged in each refinancing. Long story short? With each refinancing,
you've increased your debt and probably are paying a very high price
for some extra cash. After a while, if you get in over your head
and can't pay, you could lose your home.
The "Home Improvement" Loan
A contractor calls or knocks on your door and offers to install
a new roof or remodel your kitchen at a price that sounds reasonable.
You tell him you're interested, but can't afford it. He tells you
it's no problem-he can arrange financing through a lender he knows.
You agree to the project, and the contractor begins work. At some
point after the contractor begins, you are asked to sign a lot of
papers. The papers may be blank or the lender may rush you to sign
before you have time to read what you've been given. The contractor
threatens to leave the work on your house unfinished if you don't
sign. You sign the papers. Only later, you realize that the papers
you signed are a home equity loan. The interest rate, points and
fees seem very high. To make matters worse, the work on your home
isn't done right or hasn't been completed, and the contractor, who
may have been paid by the lender, has little interest in completing
the work to your satisfaction.
Credit Insurance Packing
You've just agreed to a mortgage on terms you think you can afford.
At closing, the lender gives you papers to sign that include charges
for credit insurance or other "benefits" that you did
not ask for and do not want. The lender hopes you don't notice this,
and that you just sign the loan papers where you are asked to sign.
The lender doesn't explain exactly how much extra money this will
cost you each month on your loan. If you do notice, you're afraid
that if you ask questions or object, you might not get the loan.
The lender may tell you that this insurance comes with the loan,
making you think that it comes at no additional cost. Or, if you
object, the lender may even tell you that if you want the loan without
the insurance, the loan papers will have to be rewritten, that it
could take several days, and that the manager may reconsider the
loan altogether. If you agree to buy the insurance, you really are
paying extra for the loan by buying a product you may not want or
need.
Mortgage Servicing Abuses
After you get a mortgage, you receive a letter from your lender
saying that your monthly payments will be higher than you expected.
The lender says that your payments include escrow for taxes and
insurance even though you arranged to pay those items yourself with
the lender's okay. Later, a message from the lender says you are
being charged late fees. But you know your payments were on time.
Or, you may receive a message saying that you failed to maintain
required property insurance and the lender is buying more costly
insurance at your expense. Other charges that you don't understand-like
legal fees-are added to the amount you owe, increasing your monthly
payments or the amount you owe at the end of the loan term. The
lender doesn't provide you with an accurate or complete account
of these charges. You ask for a payoff statement to refinance with
another lender and receive a statement that's inaccurate or incomplete.
The lender's actions make it almost impossible to determine how
much you've paid or how much you owe. You may pay more than you
owe.
Signing Over Your Deed
If you are having trouble paying your mortgage and the lender has
threatened to foreclose and take your home, you may feel desperate.
Another "lender" may contact you with an offer to help
you find new financing. Before he can help you, he asks you to deed
your property to him, claiming that it's a temporary measure to
prevent foreclosure. The promised refinancing that would let you
save your home never comes through.
Once the lender has the deed to your property, he starts to treat
it as his own. He may borrow against it (for his benefit, not yours)
or even sell it to someone else. Because you don't own the home
any more, you won't get any money when the property is sold. The
lender will treat you as a tenant and your mortgage payments as
rent. If your "rent" payments are late, you can be evicted
from your home.
Protecting Yourself
You can protect yourself against losing your home to inappropriate
lending practices. Here's how:
Don't:
- Agree to a home equity loan if you don't have enough income
to make the monthly payments.
- Sign any document you haven't read or any document that has
blank spaces to be filled in after you sign.
- Let anyone pressure you into signing any document.
- Agree to a loan that includes credit insurance or extra products
you don't want.
- Let the promise of extra cash or lower monthly payments get
in the way of your good judgment about whether the cost you will
pay for the loan is really worth it.
- Deed your property to anyone. First consult an attorney, a knowledgeable
family member, or someone else you trust.
Do:
- Ask specifically if credit insurance is required as a condition
of the loan. If it isn't, and a charge is included in your loan
and you don't want the insurance, ask that the charge be removed
from the loan documents. If you want the added security of credit
insurance, shop around for the best rates.
- Keep careful records of what you've paid, including billing
statements and canceled checks. Challenge any charge you think
is inaccurate.
- Check contractors' references when it is time to have work done
in your home. Get more than one estimate.
- Read all items carefully. If you need an explanation of any
terms or conditions, talk to someone you can trust, such as a
knowledgeable family member or an attorney. Consider all the costs
of financing before you agree to a loan.
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