Don't be fooled by loan offers you see on television or receive in the mail.
They don't tell the full story.
Be a smart borrower. Don't get caught in a bad loan!
Warning Signs
Be cautious if anyone:
- Advertises or says,"Poor credit? No problem!"
- Calls on the phone or comes to your door offering you a "bargain loan."
- Rushes you to sign that day.
- Asks you to pay a fee "up front" to cover a first payment or other expenses.
- Offers you a loan with small monthly payments and a balloon payment that
you'll have difficulty paying when it comes due.
Annual Percentage Rate (APR): The cost of a loan expressed
as a percentage rate. It includes both the interest rate on the loan and many
of the costs in getting the loan. APRs are the best way to compare loans.
Balloon Payment: This is the very large payment that is due
at the end of some loans. A balloon payment means that the borrower's monthly
payments are used to pay the interest on the loan and that little of the payment
is used to pay back the amount that was borrowed. Unless you know how you will
make this payment, these loans can be risky.
Bid: A written estimate of what your home improvement project
will cost.
Closing Costs: All of the "other" costs that you have to pay
when borrowing money. They could include fees for credit reports, land survey,
appraisal, title search, title insurance, document preparation, notary, points,
credit life insurance, and attorney fees.
Credit Insurance: An insurance policy (such as life, disability,
or unemployment) that pays the lender the balance of the loan if something happens
to the borrower before the loan is paid off. Sometimes the lender adds the entire
price of the policy to the amount you are borrowing and this is very expensive
because you pay interest on that amount.
Credit Report: Credit bureaus collect information about your
credit history-where you owe money, how much you owe, your credit cards, and
your payment history. Lenders determine whether to give you a loan and how much
to charge you based on information in your credit report.
Credit Score: Your credit score is a number that is used by
lenders to decide whether to give you credit and at what cost. It is based on
information in your credit report.
Equity: The difference between what your house is worth and
what you owe on it. For example, if your house is worth $150,000 and you owe
$100,000, your equity is $50,000.
Fraud: Dishonest business practices that lead to your doing
something against your best interest.
Housing Counselor: Counselors can help you explore your options,
find a loan, and explain loan documents. They also offer help with foreclosure
problems. The Department of Housing and Urban Development (HUD) certifies housing
counselors.
Installment Payments: Partial payments made to home improvement
contractors as the work is being done.
Interest: The percentage rate lenders charge you for using
their money. The higher the percentage, the more you pay.
Line of Credit: A pre-approved amount that you can borrow.
You only borrow what you need, when you need it.
Mortgage Broker: A person you pay to help you find a lender.
Points: Each point is 1% of the amount you are borrowing.
Predatory Lenders: Lenders who take advantage of borrowers
and make loans that the borrowers cannot afford. They may charge very high interest
rates or fees, hide costs, or lie about loan terms.
Principal: The amount of money that you borrow.
Settlement: The meeting where you review and sign your loan
papers. Also called a "closing."
Total Amount to Repay: This is the total amount of fees, points,
and all monthly and balloon payments that you will pay over the life of the
loan.
